The outcome of the review may signal what climate-related laws and policies to expect in the UK in the coming years.
By Paul A. Davies, Michael D. Green, and James Bee
On 8 September 2022, newly appointed UK Prime Minister Liz Truss announced that Chris Skidmore MP, a Member of Parliament and former minister of energy and clean growth, would lead a review into the UK’s net zero commitment.
The previous administration established a UK target in 2019 to bring all greenhouse gas (GHG) emissions to a net zero level by 2050, in response to a recommendation from the Committee on Climate Change (the UK’s independent climate advisory body). The new Prime Minister, who during her leadership campaign had stated that she will “double down” on the UK’s attempts to meet its 2050 target, appointed Skidmore with the mandate to find the “fastest and most efficient way” to reach the target.
Skidmore, who as energy and clean growth minister signed the UK’s net zero target into law in 2019, has been given until the end of 2022 to report back with his findings.
The findings of the review are likely to provide an interesting insight into where the UK government’s climate policy may be heading. Meanwhile, a number of other initiatives announced under the previous administration remain pending. Further developments in relation to these initiatives, and how they are viewed as fitting into the net zero target, will be important to note. Such initiatives include:
- Sustainability Disclosure Requirements (SDR)
First announced by the UK’s previous Chancellor in July 2021, the SDR are envisioned as providing an integrated framework on corporate sustainability disclosures, with requirements on both financial (including at product-level) and non-financial companies. In that respect, the SDR could be seen as consolidating the functions of the EU’s Corporate Sustainability Reporting Directive (CSRD), which focuses on corporate level disclosures, and the Sustainable Finance Disclosure Regulation (SFDR), which focuses on financial institutions.
Further details in relation to the SDR were set out in the government’s October 2021 Greening Finance Roadmap. This included provisional timeframes for consultations, in particular, a consultation expected to be held on the corporate-level disclosures by 2022. However, such a consultation has not yet taken place, and no reference was made to the SDR in the government’s Financial Services Bill launched earlier this year, leading observers to doubt whether the anticipated timelines would be followed.
- UK Green Taxonomy
Similar to the SDR, the UK Green Taxonomy is one of the initiatives outlined in the Greening Finance Roadmap that seeks to perform a similar function to EU legislation, in this case the Taxonomy Regulation. The UK Green Taxonomy is intended to be a classification system whereby economic activities will be determined to be “environmentally sustainable” or not, based on whether they meet certain criteria.
Certain aspects of the UK Green Taxonomy have been developed over recent months, including the continuing work of the Green Taxonomy Advisory Group (GTAG), the body tasked with developing the specific criteria an activity must meet to be considered Taxonomy-aligned. Notably, however, a consultation on the climate change mitigation and climate change adaptation technical screening criteria, initially planned for the second quarter of 2022, has not yet materialised.
- UK Emissions Trading Scheme (UK ETS)
The UK ETS is a cap-and-trade scheme that seeks to reduce GHG emissions in the UK by requiring operators of certain energy-intensive installations to surrender allowances to match the amount of their emissions in that year. Allowances may either be purchased at auction or allocated for free to certain industries, in an attempt to prevent carbon leakage from the UK.
The UK ETS launched in January 2021, and in March 2022 the government published the first part of a consultation on developing the UK ETS further. The consultation considered a variety of issues, including aligning the UK ETS cap on emissions and trajectory with the UK’s 2050 net zero target, and revisiting the government’s approach to allocating free allowances.
The government published initial responses to the consultation for certain issues in August 2022, but is yet to publish responses to the majority of the consultation, which are now due.
- Carbon Border Adjustment Mechanism (CBAM)
In June 2022, the UK’s Environmental Audit Committee (EAC) published the government’s response to the EAC’s prior report, which provided recommendations on the possible implementation of the CBAM in the UK. A CBAM (for which an EU equivalent has also been proposed) would function as a carbon tariff on certain carbon intensive imports into the UK, seeking to ensure that the production of carbon intensive products is not merely outsourced to jurisdictions where there is no (or a lesser) price on carbon (so called “carbon leakage”). The government response confirmed that it would consult on possible CBAM implementation to address carbon leakage during 2022, including engaging with the EU and middle/lower income countries on how the proposal can best be aligned with policy and consumer interests.
The UK is due to make a number of further climate-related announcements in the last quarter of 2022, and the results of the review of the zero target may well be a key signal as to what additional legislation or policy initiatives might be introduced in the coming years under the new Prime Minster.
Latham & Watkins will continue to track developments in this area.