On the surge of recent criticism as regards poor performance of the EU ETS as a means of emission reductions, EPS is minded as a regulatory backstop which will limit the emissions from new fossil-fired power stations. It has to be taken into account in any power generation business projections – in the UK for now.

IED Directive – the preference for CO2 emission trading, not for rigid standard

The Directive 2010/75/EU of the European Parliament and of the Council of 24 November 2010 on industrial emissions (integrated pollution prevention and control) (OJ C 334, 17.12.2010, p. 17 – hereinafter referred to as “IED Directive”) in Article 9 stipulates that where emissions of a greenhouse gas from an installation are specified in Annex I to Directive 2003/87/EC in relation to an activity carried out in that installation, the permit (i.e. written authorisation to operate all or part of an installation or combustion plant, waste incineration plant or waste co-incineration plant) shall not include an emission limit value for direct emissions of that gas, unless necessary to ensure that no significant local pollution is caused.

The purpose of this provision is to avoid duplication of regulation. The permit for an installation covered by EU ETS should not include an emission limit value for direct emissions of the greenhouse gases because of political decisions at a EU level to limit emissions of greenhouse gases by imposing a cap on a global limit of emissions and allowing trading in emission units between installations. Trading as a flexible mechanism was considered a more efficient and less costly method for CO2 emissions abatement than imposing stringent performance standards at a level of each installation.

As is stated, however, in recital 10 in the preamble to the IED Directive, the Directive, in accordance with Article 193 of the Treaty on the Functioning of the European Union, does not prevent Member States from maintaining or introducing more stringent protective measures, for example greenhouse gas emission requirements, provided that such measures are compatible with the Treaties and the Commission has been notified.

All evidence show that UK decided to go in the direction outlined in abovementioned recital 10. The White Paper (”Planning our electric future: a White Paper for secure, affordable and low carbon electricity”, http://www.decc.gov.uk/en/content/cms/legislation/white_papers/emr_wp_2011/emr_wp_2011.aspx) published in July 2011 announced the implementation in the UK of the emission performance standard (EPS) initially be set at a level equivalent to 450g CO2/kWh (at baseload) for all new fossil fuel plant, except carbon capture and storage demonstration plant.

Main design elements for the UK model for CO2 emission performance standard

Let’s go then briefly through the main design features and projected effects of the newly-intended measure, taking as a source material the considerations contained in the abovementioned White Paper:

1. EPS is to be applied only to plant at or over 50 MW declared net capacity;

2. The EPS will be applied to individual plant rather than across a generator’s portfolio;

3. There are assessments that typical coal-fired power stations subject to the requirement must limit their emissions by 40 per cent compared to what they could otherwise emit.

4. There are no plans to impose a surcharge on imported electricity;

5. The operation of the EPS will not be retrospective. Plants which are consented before the EPS is legislated for will not be subject to the mechanism.