RFG0009
Written evidence submitted by DEFRA
Transposition
What action does the Government need to take to ensure that the EU's F-gas Regulation is fully incorporated into UK law?
The European Communities Act 1972 means that the EU Regulation was directly applicable in UK law when it was adopted by the EU in 2014. The Fluorinated Greenhouse Gases Regulations came into force in March 2015 to provide the enforcement and penalty provisions in Great Britain. They extended to Northern Ireland only in relation to import and export controls and so separate legislation was made there to cover the other enforcement provisions. Since the 2014 EU Regulation came into force, the European Commission has adopted several Implementing Acts specifying the detailed requirements of some aspects of the legislation, such as the format for labelling products containing F-gases. On 26th October the Government launched a consultation on an update to the 2015 GB Regulations which would extend enforcement powers to those new Implementing Acts. The amending Regulations would also enable the Environment Agency, Scottish Environment Protection Agency and Secretary of State to issue civil penalties, rather than having to pursue enforcement action through the courts, in order to enhance deterrence against infringements of the EU Regulation.
The European Union Withdrawal Bill will ensure that the whole body of existing EU environmental law, including the F-gas regulation, continues to have effect in UK law, providing businesses with maximum certainty as we leave the EU. The HFC quota system currently operates on an EU-wide basis, with UK, other EU and non-EU companies (with representation in the EU) being given quotas to place HFCs anywhere on the EU market. How that quota system operates when we leave the EU will depend on the outcome of ongoing negotiations. The Government is preparing for a range of possible outcomes which are all underpinned by the twin principles of maintaining the same level of environmental outcome and minimising disruption for businesses.
Should the UK go beyond EU regulatory minimums and develop stronger F-gas legislation?
Beyond ensuring the F-gas regulation continues to have effect in UK law, providing businesses with maximum certainty, there are no plans to change the way F-gases are regulated, other than the steps technically necessary to maintain the current phase down mechanism.
During its negotiation, the EU F-gas Regulation was judged to strike the correct balance between environmental ambition and what was technically feasible and reasonable for businesses in terms of the pace of phase down. This judgment seems to have been borne out. European Commission analysis shows that the price of HFCs has increased significantly in 2017, including a near five-fold increase for one of the refrigerants with a high global warming potential, R404A, traditionally used in supermarket refrigeration systems amongst others. This is driving the market to switch to less damaging alternatives. Given that F-gases contribute around 3% of UK greenhouse gas emissions, accelerating the pace of the current phase down would only achieve relatively small environmental benefits, while driving up prices further for consumers and creating potentially significant supply problems for sectors where alternatives are currently limited. It would also put UK businesses at a competitive disadvantage globally.
What role has the EU played in ensuring policy coherence across the UK on regulating F-gases and how should this be managed during and after the UK leaves the EU?
The EU Regulation applies in the same way across the UK, although its enforcement is devolved. The Government is working with the Devolved Administrations to ensure that relevant legislation transferred into UK law is operable following our exit from the EU.
Administrative, Policy and Regulatory Implications of EU Withdrawal
After leaving the EU, which UK body should have oversight of adherence to F-gas legislation and will it be adequately resourced to ensure compliance?
For England, policy responsibility rests with the Department for Environment Food and Rural Affairs and the Environment Agency is the principal enforcement body. Other enforcement bodies in England include BEIS / OPRED, local authorities, port health authorities, HMRC and the UK Border Force. This will continue after EU Exit.
The Department for Environment Food and Rural Affairs and the Environment Agency are equipping themselves with the resources needed to support the UK’s exit from the European Union. Arrangements and resources for the core EU Exit project have already been put in place and sufficient resource for business as usual activities will continue to be made available.
Assessments of future resource needs will be made as part of future spending reviews.
Will the UK need to create new infrastructure to replicate relevant EU institutions, expertise and research that focus on reducing F-gas emissions?
At present, the European Commission and European Environment Agency, maintain administrative systems for allocating F-Gas quotas to companies and managing business reporting on production, usage, import, export and destruction of F-gases. Principal responsibility for enforcement and penalties lies with Member States.
The Government intends to negotiate a deep and special partnership with the EU but it is important to be prepared for a range of outcomes. Plans are designed to provide the flexibility to respond to different outcomes, including the unlikely possibility of leaving without a deal. One possible outcome includes establishing a separate UK F-gas quota system. This would require the UK to set up administrative systems to manage its own quota allocation process and associated business reporting. It is envisaged that such systems would be established and managed by the Environment Agency.
There is no EU body specifically dedicated to F-gas research and regulation. Instead, at the international level, the UK, along with any other party to the UN Montreal Protocol, may request advice on F-gases and their alternatives from the expert panels established under the Protocol. The UK also has a large pool of expertise in the academic and chemical research sectors to draw upon should the Government need to assess any aspects of F-gas impacts, reduction measures or alternatives in future. Given the regulatory drive to reduce usage, F-gas development by industry is relatively infrequent and the impact of any new F-gases would be assessed on an ad-hoc basis should the need arise. The phase down of F-gases is encouraging industry to undertake its own research and development of alternatives.
After leaving the EU, would relying on the Montreal Protocol alone lower UK ambitions to reduce F-gas emissions and is the UK’s enforcement regime strong enough to ensure compliance?
The Government is committed to maintaining the ambitious level of F-gas phase down upon which we are currently embarked. This will reduce usage between now and 2030 at a faster pace than is required under the Montreal Protocol. UK businesses have already based their future plans, contracts and investments on this phase down schedule and the Government has no plans to change the pace.
EU institutions are not directly involved in pursuing enforcement action or applying penalties to companies or individuals for infringements of the current Regulation. The one exception is for companies which exceed their quota allowance, where the Commission will penalise them by deducting twice the amount by which the quota was exceeded from their following year’s allocation. If the UK were to establish its own quota system following exit, this power would be transferred to UK enforcement authorities under the EU Withdrawal Bill. The principal responsibility for enforcement and penalties already lies with Member States and the UK has an established system in place. A successful prosecution for the deliberate release of F-gas was secured by the Environment Agency in 2016. Nevertheless, the Government has been proactive in monitoring the effectiveness of the enforcement system as the 2014 EU Regulation has bedded down and now plans to strengthen deterrence by introducing civil penalties for infringements in England, Scotland and marine areas from April 2018.
As the UK leaves the EU, how will the Government ensure certainty regarding its obligations to the Montreal Protocol as an individual signatory outside of the EU bloc?
The UK is and will remain a party to the Protocol in its own right. As such, we will remain legally bound to comply with the requirements of the UN Montreal Protocol after we leave the EU. The Government intends, via the EU Withdrawal Bill, to maintain the existing F-gas phase down schedule established by the current EU Regulation, which requires a 79% reduction by 2030. That will be more than sufficient to comply with Montreal Protocol requirements until 2030. The current EU Regulation requires a review of the Regulation by the end of 2022. By transferring the Regulation requirements into UK law, the Government would also be required to undertake a review by the end of 2022, which will be used to determine how the UK would meet the final Montreal Protocol phase down step, given that we are in the process of ratifying the Kigali amendment.
In addition to meeting the HFC phase down, the UK may, depending on the outcome of EU exit negotiations, also need to meet other requirements of the Montreal Protocol which would otherwise be undertaken under the terms of our membership of the EU. This could include, for example, reporting to the UN on HFC production and imports. The Government is preparing to set up processes for meeting those obligations in the event that we would need to carry out these functions following our exit from the EU. The UK would also need to establish an HFC usage baseline which would form the basis of the Montreal Protocol phase down. Similarly, the EU would need to adjust its baseline to exclude the UK portion. Both baselines would need to be notified to and agreed by Montreal Protocol parties.
How will UK businesses and consumers be affected?
The Government has already begun engaging businesses across the economy to understand the challenges and opportunities facing them over the coming months and years. It is important to reduce uncertainty wherever possible and the Government is working to get the right deal for industry and ensure the UK remains the best possible place to do business. The Prime Minister has made clear that we are pursuing a new, deep and special partnership. As a priority, we will seek a bold and ambitious free trade agreement that is of greater scope and ambition than any such existing agreement.
How exactly UK businesses and consumers will be affected depends on how the F-gas quota system operates when we leave the EU, which depends on the outcome of the ongoing negotiations.
If the current quota system were to be split into separate UK and EU systems, businesses would face a relatively small additional administrative burden of reporting to two systems. Furthermore, in order to continue to hold an EU quota, the 40 to 50 UK companies which currently hold a quota may have to become established in the EU or mandate an “only representative” established in the EU to undertake their obligations under the Regulation. Importantly, as long as those companies’ future EU and UK quotas combined were the same in total as their current EU quota allocation, then they would not lose any market share in terms of HFC sales, though there may be some loss of flexibility in terms of being able to shift future sales from the UK to EU or vice versa. Similarly, as long as the total quota allocated to companies placing HFCs on the UK market matched the quantities currently being placed on the UK market, HFC supply and therefore consumer prices should not be significantly affected as a result of separating the UK quota from the EU.
If the UK were to stay within the EU quota system, there would be little or no administrative or market impact for businesses or consumers, though companies may still be required to establish an office or “only representative” in the EU.
Whichever scenario is pursued, the Government would maintain the current HFC phase down schedule to minimise disruption to businesses existing investment plans.
Progress on Reducing F-gas Emissions:
Is the Government doing enough to reduce F-gases?
The Government believes that the current rate of phase down strikes the right balance between environmental ambition and what is technically feasible and reasonable for businesses. As mentioned above, this seems to be borne out by the significant price increases for HFCs in 2017 which is driving the market to switch to less damaging alternatives. Given that F-gases make up around 3% of UK greenhouse gas emissions, accelerating the pace of the current phase down would achieve relatively small environmental benefits, while driving up prices further for consumers and creating potentially significant supply problems for sectors where alternatives are currently limited. It would also put UK businesses at a competitive disadvantage globally.
Are there blockers preventing adoption of existing alternatives to F-gases and is there potential to develop new cost-effective replacements?
One of the most significant hurdles involves the cost of converting or installing new systems, such as commercial refrigeration and air conditioning systems, to use lower global warming refrigerants. The quota system is already limiting HFC supply and driving up their prices as intended and there is evidence that this is encouraging the market to develop and switch to alternatives. For example, several major UK supermarket chains have made significant progress in switching their refrigeration away from HFCs to carbon dioxide or hydrocarbon systems. We would expect the price of such alternative systems to come down as demand increases.
Another challenge involves product standards which may impose restrictions on the use of flammable or mildly flammable alternative refrigerants. The Government is committed to ensuring consumer safety, and is engaged in initiatives at a global level to review those standards. The Government supports such reviews with the aim of increasing the use of alternative refrigerants but without compromising consumer safety.
Training for technicians in installing and maintaining systems which use F-gas alternatives is also important, particularly in the safe handling of flammable alternatives. There are already industry led initiatives to increase awareness and training, but the Government will continue to monitor whether more action is needed in this area.
What policies should the Government bring forward to reduce F-gas emissions?
The European Union Withdrawal Bill will ensure that the whole body of existing EU environmental law, including the F-gas regulation, continues to have effect in UK law, providing businesses with maximum certainty as we leave the EU. We have developed plans on future policy and processes to respond flexibly to different negotiating outcomes. This includes the possibility of establishing a separate UK F-gas quota system. Regardless of the outcome of negotiations, the Government will maintain the current pace of HFC phase down as it strikes the right balance between environmental ambition, cost and technical feasibility.