_[July 2014 update on this story available here](http://www.sandbag.org.uk/blog/2014/jan/21/some-questions-answered-new-guidelines-reductions-/ “”)_

The [ETS](http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme “”) ensures that every tonne of carbon dioxide installations release is paired up with a permit surrendered to government. But what happens when, mistakenly or maliciously, an installation emits the pollution, but doesn’t pay the price?

In 2008, an ExxonMobil ethylene refinery in Fife, Scotland, [emitted over 30,000 tonnes of carbon dioxide without notifying the regulator](http://www.out-law.com/en/articles/2012/february/oil-company-fined-a-record-28m-by-sepa-over-emissions-failings/ “”). For that breach, ExxonMobil received the largest environmental fine in UK history, paying over €3 million. They were forced to not just pay for the permits they should have surrendered, but €100 extra for every tonne, and resting over the heads of ExxonMobil executives was the threat of criminal penalties.

In a consultation which closes today, **proposed amendments to the UK’s greenhouse gas emissions trading scheme regulations will endanger the integrity of the scheme in the UK**. As part of the government’s ‘bonfire of regulations’, penalties for not surrendering emissions permits are set to be dramatically lowered. The amendments also set out that non-compliance is to be treated under civil, not criminal law. Furthermore, the changes give the regulator total power of discretion, allowing them to further reduce or even waive penalties entirely.

Sandbag’s Phil MacDonald says:
“_These changes could not only endanger the integrity of the scheme, but also appear to contravene the ETS Directive which clearly states that installations not paying for their pollution are penalised to the tune of €100 per tonne of CO2. The government’s changes in many cases reduce this penalty to just €20 per tonne of CO2. Sandbag is challenging the government to reconsider the outcomes of these dramatic changes._”

Allowing the regulator to reduce or even remove a penalty gives industry great incentive to lobby regulators into dropping fines. Phil MacDonald says “_We’re particularly worried by [regulatory capture](http://en.wikipedia.org/wiki/Regulatory_capture “”) as a result of these changes. Allowing the regulator the power to choose what the penalty is, or whether there should be a penalty at all, invites corruption._”


To date fines for EU ETS noncompliance have totalled approximately £5million in the UK, with £2.8million coming from ExxonMobil’s single 2011 fine. These fines are marginal considering the EU carbon market was worth $148 billion in 2011. Changing the regulation so dramatically to reduce fines seems to have little to do with lightening the regulatory burden. Sandbag believes that robust penalties and the threat of criminal convictions are important deterrents to stop ETS noncompliance and reflect the serious implications of defrauding both the market and the environment.

Read the Executive Summary below for more details, or for even more details view Sandbag’s consultation response [here](http://www.sandbag.org.uk/site_media/uploads/Consultation_response_web_version_on_Amendments_to_ETS_and_NEI_Regulations_2013.pdf “”)

**The Executive Summary from Sandbag’s consultation response**

_Sandbag outlines below areas in which the draft 2013 Regulations on Greenhouse Gas Emissions Trading Scheme need changes in order to improve the 2012 Regulations, above and beyond the government’s proposed changes. As the Regulators have not yet updated Operator guidance, this is an apt time to make these changes and restore the integrity of the emissions trading scheme in the UK._

– The **€100tCO2 mandatory penalty regime should be reinstated**, to ensure clear financial cost to EU ETS non-compliance, for transgressions in Phase II and in Phase III, for Verified and Reportable emissions. Sandbag considers Directive 2003/87/EC Article 16 (3) to be explicit in setting out a €100tCO2 mandatory penalty regime, as does previous Environment Agency guidance. The government has stated “the legal position may in the longer term have to be clarified by the UK courts” in regard to the €20tCO2 discretionary penalty. Sandbag believes the Directive is clear; the mandatory €100tCO2 penalty should be reinstated.

– **Discretion on penalties should be removed**. The mandatory penalty helps to avoid the risk of regulatory capture. Allowing fines to be waived incentivises co-option of the regulator by industry at the expense of citizens.

– **Criminal penalties should be restored**, as they represent a necessary deterrent. Current Regulator guidelines already focus on civil penalties, and criminal penalties are not unnecessarily used.

– The changes in this consultation and the 2012 regulations shift the burden from correct initial reporting by ETS operators, to reliance upon the regulator to correct the reports after the fact. This shift would occur in the context of severe and repeated cuts to the regulator, with obvious consequences.

– Within the general ideology of “a bonfire of regulations”, the complex and technical nature of these reforms has undetermined outcomes for compliance. Sandbag recommends clear evidence is gathered before policy change.

– The EU has led the world on emissions trading. **As others, including China, look to the EU for guidance as they begin their own schemes, now is the wrong time to water-down EU ETS enforcement without strong evidence of benefit.**