UK Government Announces Review of Net Zero Target | Latham & Watkins LLP

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The outcome of the review could indicate what to expect from climate-related laws and policies in the UK in the years to come.

On September 8, 2022, newly appointed UK Prime Minister Liz Truss announced that Chris Skidmore MP, MP and former Minister for Energy and Clean Growth, would lead a review of the UK’s net zero commitment.

The previous administration set a UK target in 2019 to bring all greenhouse gas (GHG) emissions to net zero by 2050, in response to a recommendation from the Committee on Climate Change (the body UK Independent Climate Advisory). The new prime minister, who during her leadership campaign said she would ‘double down’ on the UK’s attempts to meet its 2050 target, appointed Skidmore with a mandate to find the ‘best way’ fastest and most efficient way to achieve the goal.

Skidmore, who as minister for energy and clean growth signed off on the UK’s net zero target in 2019, was given until the end of 2022 to report on his findings.

The findings of the review are likely to provide interesting insight into the direction the UK government’s climate policy could take. Meanwhile, a number of other initiatives announced under the previous administration remain pending. Other developments related to these initiatives, and how they are viewed as part of net zero, will be important to note. These initiatives include:

  1. Sustainability Disclosure Requirements (SDR)

First announced by the former UK Chancellor in July 2021, the SDRs are envisaged as providing an integrated framework on corporate sustainability disclosures, with requirements for financial companies (including at corporate level). products) and non-financial. In this regard, the SDR could be seen as consolidating the functions of the European Corporate Sustainability Reporting Directive (CSRD), which focuses on corporate-level disclosures, and the Financial Reporting Regulation. (SFDR), which focuses on financial institutions.

Further details regarding the SDR were set out in the government’s October 2021 roadmap for green finance. This included tentative deadlines for consultations, in particular a consultation that is expected to take place on company-level disclosures by 2022. However, such consultation has not yet taken place and no reference has been made to the SDR in the Government’s Financial Services Bill. launched earlier this year, leading observers to doubt that the planned deadlines will be met.

  1. British green taxonomy

Similar to the SDR, the UK’s Green Taxonomy is one of the initiatives outlined in the Greening Finance Roadmap which aims 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 in which economic activities will be determined to be “environmentally sustainable” or not, depending on whether they meet certain criteria.

Aspects of UK Green Taxonomy have been developed over the past few months, including the continued work of the Green Taxonomy Advisory Group (GTAG), the body responsible for developing the specific criteria an activity must meet to be considered to be taxonomy aligned. Notably, however, a consultation on the Technical Screening Criteria for Climate Change Mitigation and Adaptation, originally scheduled for Q2 2022, has yet to materialize.

  1. UK Emissions Trading Scheme (UK ETS)

The UK ETS is a cap and trade system which aims to reduce GHG emissions in the UK by requiring operators of certain energy-intensive installations to surrender allowances equal to the amount of their emissions in that year. Allowances can either be bought at auction or given away to certain industries for free, with the aim of preventing carbon leakage from the UK.

The UK ETS was launched in January 2021 and in March 2022 the government published the first part of a consultation on the development of the UK ETS. The consultation looked at a range of issues, including aligning the UK ETS cap on emissions and trajectory with the UK’s net zero target by 2050, and revising the government’s approach to allocation free quotas.

The government released the first responses to the consultation on some issues in August 2022, but has yet to release the majority responses to the consultation, which are now due.

  1. Carbon Border Adjustment Mechanism (CBAM)

In June 2022, the UK’s Environmental Audit Committee (EAC) published the government’s response to the previous EAC report, which provided recommendations on the possible implementation of CBAM in the UK. A CBAM (for which a European equivalent has also been proposed) would operate as a carbon tariff on certain carbon-intensive imports into the UK, seeking to ensure that the production of carbon-intensive products is not simply outsourced to jurisdictions where there is no (or a lower) carbon price (so-called “carbon leakage”). The government response confirmed that it would consult on a possible implementation of the CBAM to tackle carbon leakage in 2022, including engaging with the EU and middle/low income countries on the best how to align the proposal with policy and consumer interests.

Conclusion

The UK is expected to make a number of other climate-related announcements in the last quarter of 2022, and the results of the zero target review may well be a key signal as to further legislation or policy initiatives which could be introduced in the coming years under the new Prime Minister.

Latham & Watkins will continue to monitor developments in this area.

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