As part of the consultation on Developing the UK Emissions Trading Scheme (UK ETS), the UK Government is consulting on how solid and gaseous biomass is treated under the UK ETS, in cases where it is combusted as a fuel by energy intensive industries and power generation sectors in scope of the ETS. The consultation does not extend to biofuels for transport.


Current arrangements 

The combustion of solid and gaseous biomass is currently entirely zero-rated in the UK ETS, meaning any installation burning biomass has not needed to surrender allowances for the proportion of its emissions accounted for by that solid or gaseous biomass. Solid biomass includes forestry by-products, sawmill residues, waste wood or energy crops that can be used for solid biomass production. Gaseous biomass is produced by anaerobic digestion (AD) and can be further processed into biomethane.

The combustion of liquid biomass (or bioliquids) such as waste fats, oils, grease that can be used for liquid biomass production is zero rated in the UK ETS only if certain sustainability criteria are met.

The UK ETS also currently only covers activities involving combustion of fuels in installations operating above the 20MWth threshold.

For Hospital and Small Emitters (HSEs), an emissions factor of zero is applied to all biomass, including liquid biomass. Emissions from biomass are also not included when calculating an emissions target and when determining whether an installation’s reportable emissions exceed the emissions target. These exclusions apply regardless of the sustainability of the biomass.

The case for change

Emissions from solid and gaseous biomass are currently zero rated in the UK ETS because the UK mirrored the approach in Phase III of the EU ETS when designing the UK ETS. There is now the opportunity to align the treatment of biomass in installations with other UK policies. Sustainability criteria are currently applied to solid, liquid, and gaseous biomass in other UK policies, such as in the Renewables Obligation, Contracts for Difference, and Non-Domestic Renewable Heat Incentive schemes. These criteria are some of the most stringent sustainability criteria globally and cover solid, liquid, and gaseous biomass. 

Proposed changes 

The consultation is proposing to: 

  • apply sustainability criteria to solid, liquid and gaseous biomass for all installations, using a set of criteria mirroring one of the UK policies which already applies these standards, ensuring a more consistent approach to biomass between the UK ETS and the relevant biomass policies in each sector. They are seeking views on which set of criteria to apply, as different criteria are applied in different policy areas. 
  • require that installations and combustion units which generate energy (power, heat, etc.) solely through biomass combustion exclusively burn biomass which adheres to the relevant sustainability criteria if they want to be exempt from the UK ETS. Otherwise there would be an asymmetry between policy applied to biomass-only installations and installations which separately burn both biomass and fossil fuels. 
  • require the sustainability criteria to be applicable to HSEs for the purpose of (a) assessing eligibility to be a HSE in the second allocation period, (b) calculating of emissions targets and (c) determining whether an installation’s reportable emissions exceed the emissions targets. An emissions factor of zero would also only apply to biomass that meets the sustainability criteria. This change would come into effect from the start of the second allocation period.

Who the changes will affect

This will affect energy intensive industries and power generators that burn solid and gaseous biomass. If the proposals are implemented, they will have to surrender allowances for their emissions under the UK ETS, unless the biomass meets the sustainability criteria. 

Producers of gaseous biomass (i.e. AD plants) that supply it direct to combustion plants will have to prove that it meets the sustainability criteria, otherwise those combustion plants will be subject to the UK ETS. If the AD plants are supplying gas to the grid and entering into gas purchase agreements with gas offtakers, the offtakers may start to impose sustainability criteria in the contracts, as their ultimate customers (AD combustion plants) will need to prove that the gas they are burning was generated sustainably. 

In practice, this should not cause too much of an issue as most AD plants rely on some kind of government support such as the Non-Domestic RHI or its replacement the Green Gas Support Scheme, which impose sustainability criteria. As long as the UK ETS sustainability criteria mirror these, there should not be much extra compliance involved. We will have to see what the outcome of the consultation is on this.

There will be more of a burden on HSEs as they will have to prove the sustainability of the biomass they are using. HSEs should start to think about varying their biomass contracts to take account of this.

Key Contacts

Alexander Sarac

Alexander Sarac

Partner, Infrastructure Projects & Energy
UAE / Germany

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Michelle Headrige

Michelle Headrige

Partner, Environment & Sustainability; Construction & Engineering
Manchester, UK

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Inga Aryanova

Inga Aryanova

Managing Associate, Infrastructure Projects & Energy
London

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Carl Baker

Carl Baker

Legal Director, Finance
London

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