Environment Report 2018

ENVIRONMENT REPORT 2018

EU Emissions Trading System The EU ETS is a central pillar of Europe’s long-term decarbonisation policy. By setting an effective carbon price, the scheme aims to changes the behaviours of the member states it applies to, without damaging EU industries. Since the recession in 2008–09, ETS carbon prices have not been high enough to induce companies to switch to lower-carbon fuels or to promote the intended investment in low-carbon energy sources. These lower prices have led to EU action to reform the market through ‘backloading’ (reducing the availability of free carbon allowances in later years). In the period since the UK’s referendum on EU membership there has been an increase in the carbon price from approximately €6 to a peak of €25 per tonne, as shown in Figure 17. Almost all of the UK’s upstream industry, comprising offshore installations and onshore terminals, falls within the scope of EU ETS. Installations responsible for any CO 2 emissions are required to monitor and verify such emissions and surrender allowances to cover them each year. Since the industry is deemed to be at risk of carbon leakage, installations receive some free allowances based on historical performance relative to an industry benchmark. However, there are no free allowances allocated for emissions from electricity generation. Offshore installations are not connected to the onshore grid, so they must generate their own electricity using produced fuel gas for all operational needs. emissions from UK offshore installations. The effect of the ineligibility of emissions from electricity generation is that, uniquely among the six largest industrial sectors in the ETS, upstream oil and gas is short of allowances and must purchase them in the market each year to meet its ETS obligations. Such energy generation accounts for more than half the total CO 2

28