Ozone-Depleting Substances and Fluorinated Greenhouse Gases (Amendment etc.) (EU Exit) Regulations 2019

Baroness Miller of Chilthorne Domer Excerpts

Wednesday 27th February 2019 Grand Committee

[Baroness Vere of Norbiton (Con)]

My Lords, this instrument corrects deficiencies in retained EU law so that the UK can continue controlling the use of ozone-depleting substances and fluorinated greenhouse gases—F-gases—following our exit from the EU.

Almost all uses of ozone-depleting substances, such as chlorofluorocarbons, have been phased out under the United Nations Montreal Protocol. EU legislation implements the United Nations Montreal Protocol agreement by restricting ozone-depleting chemicals to certain limited uses where there are no viable alternatives, such as fire extinguishers on aircraft. Usage is kept below the very low levels permitted by the Montreal Protocol by restricting sales to certain registered companies and by applying quota limits on how much each can sell and use. The legislation also requires all imports and exports to be licensed in order to help monitor global compliance.

F-gases replaced ozone-depleting substances for many uses, including refrigerants, aerosol propellants and other industrial processes. These gases do not damage the ozone layer, but they are still powerful greenhouse gases. EU legislation from 2014 requires a 79% cut in the use of F-gases by 2030. Following our lead, a global agreement came into force this year, amending the Montreal Protocol to phase them down internationally over the next 30 years. Most of the provisions in retained EU law can operate in the UK without amendment. However, crucial elements of these EU regulations would not function without this instrument.

Most importantly, the restriction on the amount of F-gas which can be sold is currently achieved through quota limits placed on importers and producers. These quotas are currently allocated by the European Commission directly to individual businesses that are producing and importing. These regulations transfer quota allocation powers to the Secretary of State and the devolved Administrations. This means establishing UK quota systems which are separate from the EU’s systems. Instead of an importer or producer of F-gases getting a single quota from the Commission limiting how much they sell in the EU28 market, they would get two quotas, one from the Commission for sales on the EU27 market and one from the Environment Agency for sales on the UK market. UK companies will be able to continue exporting F-gases to the EU as long as they establish an office in the EU or appoint a company to represent them. In order to determine the level of UK quotas and ensure that UK supply remains on track to achieve a 79% cut in 2030, all companies supplying the UK were asked to provide independently audited data on how much they placed on the UK market between 2015 and 2017. This period was after the EU quota restrictions were already in place, meaning that the total UK supply will remain within the existing phase-down limits.

The current EU process assigns quotas to individual companies for placing F-gases on the EU28 market rather than to member states for their domestic consumption. This makes it difficult to identify exactly how much gas is supplied to the UK, as some EU-based companies use some of their quota to supply the UK, and some UK companies use theirs to supply customers in the EU. This mismatch between the location of the quota allocation and the place where gas is used means that there is a risk that in splitting the quota system, we no longer get our current share of supply, as some EU companies may choose not to supply the UK in the future. These regulations therefore include a power to adjust companies’ quotas if we find that the overall UK supply of F-gases is below the level it would have been had we not left the EU. This power would be used only where there was evidence of a supply shortfall and where there was a high probability of a significant impact on critical sectors. The power would not be used to increase supply beyond where it would have been had we remained in the EU.

Regarding the specific changes made by this instrument, I would like to highlight a few of the more noteworthy. Regulations 4, 5 and 25 in Part 2, and Regulations 37, 38 and 56 in Part 3 facilitate the transfer of functions to the Secretary of State and the Environment Agency with respect to England, and to devolved authorities with respect to Wales, Scotland and Northern Ireland.

Regulations 7 and 9 reduce the maximum limits for the use of certain ozone-depleting substances to reflect the lower usage in the UK relative to the EU. This is done pro rata based on the population of the UK relative to that of the EU. Regulation 43 enables training certificates issued in EU member states to continue to be recognised in the UK to ensure that EU-trained technicians can continue to work here. Regulation 48 requires the authorities in one part of the UK to consult the authorities in other parts before establishing their own F-gas quota system.

I should now like to bring noble Lords up to date on progress since the Explanatory Memorandum was published. I am delighted to say that on 11 February, the IT system needed to administer UK quotas went live. So far, more than 100 businesses have already registered, including two-thirds of the main suppliers, ensuring that they can continue operating in the UK. On 12 February, a power was approved by your Lordships’ House through the Environment (Amendment etc.) (EU Exit) Regulations 2019 for regulators to charge businesses a fee to cover the cost of operating a UK system. This is in line with the long-established principle that the polluter rather than the taxpayer should pick up the cost of regulating. Although there was no formal duty to consult, Defra officials have engaged with businesses and environmental groups throughout the process. The clear message has been that we should not vary the F-gas phase-down schedule: neither slowing down nor speeding up. We published guidance for businesses in August, December and earlier this month on how the UK system would work, helping them to prepare for exit.

The requirements of the EU systems will remain very largely unchanged, so the direct impact of this instrument on businesses is small. Defra has assessed that there will be an additional administrative cost for those companies which have to deal with two quota systems—the UK and the remaining EU—rather than one in the future. This is estimated at about £60,000 per year in aggregate for the 50 or 60 UK companies affected. The Environment Agency will administer the quota and reporting systems and the agency has secured the additional staff needed.

Enforcement arrangements will remain the same as they are under EU regulations, with the Environment Agency and devolved Administration regulators undertaking the same sort of activity as they do at present. We do not expect enforcement costs to increase significantly as the number of companies being regulated will be similar.

Dialogue has continued with the devolved Administrations and I am pleased to say that all have agreed to this instrument. For our exit day preparations, they have also agreed that they will remain part of a single UK-wide system, in particular for the purpose of allocating quotas. That means that, immediately after exit, the Environment Agency will allocate quotas for the whole UK market. Discussions are also progressing well on the longer term governance arrangements for the operation of the system and the joint decision-making process, although this does not need to be in place from day one. Should an Administration wish to diverge from a UK-wide approach in the future, they will need to consult the other Administrations to ensure that preparations on both sides can be made.

I end by pointing out that the legislative powers being returned to the UK from the Commission will be exercised in almost all cases by regulation, enabling significantly greater scrutiny by your Lordships’ House than has previously been the case. I beg to move.

[Baroness Miller of Chilthorne Domer (LD)]

My Lords, I thank the noble Baroness for introducing the instrument and congratulate Defra on having gone live with the system and being much more successful than the Department for Transport with its ferries—hypothetical as they were.

This is a serious subject, so I will not make light of it. We are delighted that the statutory instrument will maintain the continuity of the ambitious targets that are necessary. In researching this, I reminded myself how much more warming fluorinated gasses are than CO₂: 23,000 times. The Minister said that it is more powerful. I had to check the figure several times because it seems very large, but they are extremely powerful substances. Ozone-depleting substances were one of the first things on which the world got together and decided to act—very successfully, it seemed.

However, in researching this I also came across a disturbing fact discovered by the University of Bristol, which is that some 40,000 tonnes of carbon tetrachloride are still being emitted, although not by anywhere that Defra is responsible for because it seems to be in the Shandong province of China. However, maybe the FCO would like to take that up, because although the EU and the UK are doing their bit, it seems that China is still emitting 40,000 tonnes of this extremely damaging chemical. You can use it in the production of chlorine, but again, that is a staggering figure. The noble Baroness told us about the continuing search for less damaging alternatives; I think the protocol also agrees that we should allow equipment to continue for its useful life so that we are not replacing things unnecessarily but that at the end of its life, we should go for something that involves a less damaging gas.