Environment law- energy

United Kingdom

Sustainable energy

The Sustainable Energy Act, which received Royal Assent on 30 October 2003, will require the government to set targets for energy efficiency and for the use of CHP. It also requires OFGEM to conduct environmental impact assessments of its proposals and will channel £60 million from the Non-Fossil Fuel Obligation towards capital grants for renewables. The Act stems from a Private Members Bill, introduced as a result of disillusionment with the environment-related provisions in the government’s Energy White Paper. Although the Act is likely to increase government commitment to energy efficiency, all references to specific targets were removed during its passage through Parliament. Section 5 of the Act came into force on 28 November 2003, after the publication of a first Commencement Order.

(SO, 30 October 2003; 19 November 2003)

Energy Bill

An Energy Bill, designed to introduce a strategy for environmental protection, security of supply, competitive markets and affordable energy, has been introduced into the House of Lords. It follows up on the proposals outlined in the Energy White Paper published in February 2003 which introduced an ‘aspirational target’ for renewables to form 20% of the total electricity used by 2020. In addition, the measures outlined are also intended to cut carbon dioxide emissions by 60% before 2050. The Bill also offers some support for offshore large-scale renewable projects outside the territorial sea such as wind farms and wave and tidal power schemes.

(Parliament, 28 November 2003)

Renewable electricity generation

The Electricity (Guarantees of Origin of Electricity produced from Renewable Energy Sources) Regulations 2003 (SI 2003 No 2562) came into force on 27 October 2003. They introduce a new certification system, the Renewable Energy Guarantee of Origin (REGO) Scheme which allows renewable energy generators to provide proof that their supply comes from a renewable source. The Scheme is open to renewables generators of all sizes, unlike the renewable obligation scheme which is only applicable to generators producing more than 0.5 MW per month. An electronic certification system will be administered by OFGEM. As the Regulations partly implement an EU Directive on the promotion of electricity produced from renewable energy sources in the internal electricity market (2001/77/EC), it operates on an EU-wide basis.

(SO, 3 October 2003)

Climate Change Levy

The Climate Change Levy (General) (Amendment) (No 2) Regulations 2003 (SI 2003 No 2633) came into force on 1 November 2003. They amend the principle 2001 Regulations that will result in coal mine methane qualifying as a renewable energy source for the purpose of Climate Change Levy exemption.

(SO, 9 October 2003)

Energy White Paper

The government has published its response to the Environmental Audit Committee’s Report on the Energy White Paper released on 22 July 2003. It rejected the Chairman’s criticism of the White Paper and says that it has a detailed long-term strategy for achieving its objectives including over 130 commitments. The government agreed that the price of energy is likely to increase as a result of introducing measures to reduce carbon dioxide emissions, although it says that energy efficiency measures proposed in the White Paper should mean that for many households and businesses energy bills will fall. The report contains a point-by-point response to the recommendations of the Environmental Audit Committee.

(Parliament, 27 November 2003)

Wind power

The Crown Estate has announced a full list of developers, size and capacity for 15 new offshore wind farm sites. The new wind farms are expected to become operational by 2010 and to provide between 5.4 and 7.2 gigawatts of electricity generating capacity. An invitation to apply for consents was originally issued in July 2003 from which the developers were selected. All the sites are located in three areas, the Thames Estuary, Greater Wash and the North West. The DTI says that the 15 wind farms should contribute at least half the government’s 10% target for renewable electricity generation by 2010. The first round was announced in December 2000 and from this 11 consents for construction have been granted, covering 12 of the 18 sites originally leased by the Crown Estate. However, the latest round is significantly larger.

(DTI Press Notice, 18 December 2003)

The Campaign to Protect Rural England (CPRE) is claiming that wind farms will threaten the beauty, tranquillity and diversity of the countryside. It warns that proposed reforms of Planning Policy Statement for renewables (PPS 22) will devastate the landscape by easing planning permission for building wind turbines. However, the British Wind Energy Association says that there are problems with financing the erection of wind farms due to uncertainty over the future price of generating electricity from wind after 2010. The CPRE wants more emphasis placed on solar, tidal and other forms of renewable energy as well as on improving energy efficiency.

(The Guardian, 15 October 2003)

Renewables obligation

The government has announced new proposals for extending the Renewables Obligation to 2015-2016, with a target of 15.4% renewable electricity generation by 2016. At present, the Renewables Obligation is due to run to 2010-2011 with a target of 10.4% renewable electricity generation. The move is intended to respond to concerns of investors that the current period is insufficient to generate adequate security. The Renewables Obligation was introduced in April 2002 and obligates all licensed electricity suppliers in England and Wales to supply a specified proportion of their electricity from renewable sources. Suppliers demonstrate their compliance to OFGEM through Renewables Obligations Certificates (ROCs) which they acquire when purchasing electricity from renewable generators, or can opt instead for paying a penalty. The extension of the Renewables Obligation was welcomed by the British Wind Energy Association which said it would be vital in securing the necessary funding for construction of large-scale offshore wind projects.

(DTI, 1 December 2003)

The DTI has undertaken a consultation exercise on proposals for amending the Renewables Obligation Order 2002. The consultation, which applies to England and Wales, is intended to clarify the position on late redemptions of ROCs. It says that late redemption of ROCs will not be an option and that all late payments will be recycled to suppliers who redeemed ROCs for the relevant obligation period. It is now proposed that such late payments are accepted and distributed to eligible suppliers. Failure by an electricity supplier to meet their obligation by 1 October will continue to incur a risk of a substantial fine and require payment of any outstanding amount. The consultation closed on 21 November 2003.

(DTI, October 2003)

BETTA

OFGEM, together with the DTI, has issued a third consultation paper seeking views on the development of a Balancing and Settlement Code as part of the British Electricity Trading and Transmission Arrangements (BETTA). It is proposed that under BETTA, due to be introduced in April 2005, there will be a single Code for Great Britain based on the current Code which applies only in England and Wales. The document sets out the timetable and process for the further development of the new Code and the second draft of the proposed legal text. OFGEM and the DTI have concluded that the governing law of the new code should be English law. The deadline for comments is 27 January 2003.

(OFGEM/DTI, December 2003)

Views have been sought on small generator issues under BETTA. It is intended to ensure that the reform of BETTA creates a competitive wholesale electricity market by providing non-discriminatory access to the market for all generators, including small generators. The consultation, conducted by Ofgem and the DTI closed on 15 January 2004.

(OFGEM/DTI, 20 November 2003)

Biomass

The Renewables Obligation is to be amended in an attempt to stimulate the development of a market for energy crops. The measures proposed include: allowing co-firing of any biomass with fossil fuel until 31 March 2009 with no minimum percentage of energy crops; from 1 April 2009 to 31 March 2010, 25% of co-fired biomass must be energy crops; from 1 April 2010 to 31 March 2011, 50% of co-fired biomass must be energy crops; and from 1 April 2011 to 31 March 2016, 75% of co-fired biomass must be energy crops. After March 2016, no co-firing will be eligible for ROCs. Originally, it had been planned that co-firing would end in 2006. In order to avoid flooding the ROC market as a result of the new proposals, the DTI suggests that the 25% existing cap on coal firing should be reduced to 10% from 1 April 2006 until 31 March 2011 and then 5% until 31 March 2016. The proposals, first announced in a consultation paper issued on 29 August 2003, were due to be laid before Parliament in early January 2004 and to come into force on 1 April 2004. The amendment has been designed so that it would allow three full cropping cycles of short rotation coppice to 2016, giving a greater incentive for investment by farmers and generators using energy crops.

(DTI News Release, 19 December 2003)

Biofuel

The Parliamentary Select Committee on Environment, Food and Rural Affairs has issued its seventeenth report on the use of biofuels to replace fossil fuels in transport. It concluded that the government’s biofuels policy is patchy and appears muddled and unfocused. It goes on to say that various government departments disagree over the level of support that should be granted to biofuels. The Committee also says that the current level of duty derogation of 20 pence per litre for biodiesel has been insufficient to stimulate domestic production. However, it also says that increasing the derogation may be ineffective as it may simply lead to more importation of biofuels produced outside the UK. The report also considered the effects of the development of crops for producing biofuels on sustainable development in general, and concluded that there are potential costs to biodiversity from growing these crops. Among the recommendations of the Committee was that the government should balance the considerations of the environment, economy and society in developing its policy on biofuels. Furthermore, it says that increasing the use of biofuels may not be the most efficient way to reduce greenhouse gas emissions and that other options, such as engine efficiency, should be examined for combating emissions from road transport.

(Parliament, 6 November 2003)

Energy labelling

Draft Energy Information Regulations have been published for consultation. The Regulations are intended to implement an EU Directive on energy labelling of household electric refrigerators and freezers (2003/66/EC), which must be transposed into national legislation by 1 July 2004. Under the Directive, the existing energy efficiency rating category of A on energy labels required to be attached to refrigeration appliances will be divided into three new categories (A, A+ and A++). The Regulations will also consolidate existing statutory provisions for energy labelling of household refrigerators. The deadline for comments is 23 January 2004.

(DEFRA, 24 October 2003)

CHP

The Sustainable Energy (CHP Provisions) Order 2003 (SI 2003 No 2987) came into force on 15 December 2003. The Order defines the government for the purpose of setting a CHP target under the Sustainable Energy Act 2003 (see above) and specifies the circumstances under which there may be exclusions from the estimation of the amount of electricity that the government will use in a period specified in the target.

(SO, 19 November 2003)

The Environment Minister has revealed that there will be a target for government departments to source electricity from good quality CHP. The target will be at least 15% by 2010, with the details of implementation to be determined in early 2004. The validity of the target will be reviewed at the end of 2005.

(DEFRA, 18 December 2003)

Social and environmental issues

The DTI has issued draft social and environmental guidance to the Gas and Electricity Markets Authority. The guidance, which was issued under the Utilities Act 2000, was laid in Parliament on 18 December 2003. It is intended that the new draft guidance will replace the current guidance issued in November 2002. Under the Utilities Act the draft guidance must be laid in both Houses of Parliament for 40 days before it can be issued by the Secretary of State, provided there are no objections. The new guidance must be adhered to by the Authority in its corporate planning process in order to attain the government’s social and environmental policies. It is hoped that it will encourage the Authority to promote and support the development of appropriate initiatives to this end.

(DTI, 19 December 2003)

European Union

Energy taxes

A new Directive on energy taxation has widened the scope of the EU’s minimum rate system, originally confined to mineral oils, to apply to all energy products including coal, natural gas and electricity. The Directive on restructuring the community framework for the Taxation of Energy Products and Electricity (2003/96/EC) will eventually impose minimum tax rate on all energy products. The Directive is an attempt to abolish the current system where rates of tax vary across EU Member States. It should also reduce distortions of competition between mineral oils and other energy products not subject to tax in the past. The Directive is also aimed at increasing incentives for energy efficiency by allowing Member States to offer companies tax incentives to reduce emissions resulting from energy use. Energy products will be taxed when used for fuel, but not when used as raw materials. The Directive also includes provisions on the taxation of commercial diesel to differentiate between commercial and non-commercial diesel and to provide for a lower rate of duty on commercial diesel.

(OJL 283, 31 October 2003)

Energy efficiency

The European Commission has issued a proposal for a directive on energy end-use efficiency and energy services. The proposal is intended to stimulate competition between different energy sources. It covers the retail, supply and distribution of energy sources such as electricity and gas, as well as transport fuels. Member States will have an obligation to ensure that certain energy distributors and supply companies offer energy services to their customers. It is envisaged that there will be around a 1% saving on energy use per year, starting in 2006, to reach a saving of 6% per year by 2012. In addition, there is also a target of at least 1.5% saving per year for the public sector, mainly through energy efficient public procurement. Distributors and retail supply companies have to integrate energy services into their distribution and sales of energy. This requires 5% of their customers to be covered in a supply-side obligation. Energy audits could be offered as an alternative.

(COM (2003) 739, 10 December 2003)

Electricity security and infrastructure

As part of its initiative to promote investment in the energy sector to ensure security of supply and to promote demand management, the European Commission has published a proposal for a directive. The proposal seeks to put in place a framework for long-term investment in the electricity sector both on the demand and supply side. It will require Member States to: have defined policies to address supply-demand balance; define standards relating to the security of transmission and distribution networks; and obligate transmission operators to submit annual investment strategies to the regulator. The proposals are intended to combat the risks of a reoccurrence of electricity blackouts experienced by several EU countries in 2003. However, the proposals have come under attack from many environmental groups who claim that greater priorities should have been granted to energy efficiency and the development of renewable sources for electricity generation.

(COM (2003) 740, 10 December 2003)

International

Renewable energy

The United Nations Environment Programme (UNEP) has launched an initiative to encourage investment in renewable energy and energy efficiency. The Sustainable Energy Finance Initiative (SEFI) is being introduced to aid investors to overcome barriers to financing renewable energy and energy efficiency projects. UNEP says that transaction costs and market uncertainty associated with many renewables projects are compounded by a lack of information and resources required to quantify and hedge project risks. SEFI developed from a project carried out by UNEP and the Basel Agency for Sustainable Energy (BASE) involving financing sustainable energy projects in developing countries. It is hoped that SEFI will encourage partnership building and alliance in the sustainable energy finance community and increase the level of funding for such projects.

(UNEP News Release, 20 October 2003)