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_July 2014 Update_

**The Environment Agency (EA) has published their provisional Enforcement and Sanctions Guidance ([see Page 10](https://consult.environment-agency.gov.uk/portal/ho/climate/enforcement_and_sanctions/enforcement_and_sanctions_guidance?pointId=2764166 “”)), based around the legislation which came into force in January, which [we wrote about earlier this year](http://www.sandbag.org.uk/blog/2014/jan/20/uk-government-adds-more-fuel-bonfire-regulations-c/ “”). At that point, after discussions with the DECC Emissions Trading team, we were worried about the introduction of a clause to allow discretion or waiver of penalties for EU ETS transgressions. This looked to allow polluters who failed to comply with the ETS the possibility of escaping without any penalty.**

The new guidance is good news, and unlikely to change substantially after consultation. Though the discretion and waiver remains for many penalties, the guidance is explicit in that the main penalty, of €100 per tonne of CO2, remains for most cases where the operator fails to surrender allowances. Where we thought the law allowed too much leeway on non-payment of emissions, the Environment Agency has removed room for doubt. The guidance also allays fears that the EA will be unduly burdened; if operators know the fines are clear for noncompliance, they won’t risk waiting for the EA to begin investigating them.

**Legal risks remain**

The government admits it is taking a legal risk introducing the €20 discretionary penalty, as the EU Directive doesn’t allow this reduction, but it applies to such a narrow number of cases, that it may not overly concern the European Commission. Crucially, unless the operator can contact the Environment Agency before their transgression is discovered, they don’t get access to the lower discretionary penalty. This means airlines which have now received their penalty letters should be liable for the full €100 per tonne fine. Ahead of the UK, [Germany has already set out €2.7 million in penalties](http://www.bloomberg.com/news/2014-04-30/germany-levies-fines-on-aircraft-operators-over-emissions.html “”), and the Netherlands is pursuing a noncompliant Chinese airline, but neither government will give details on names and individual fines. Despite assurances to the European Parliament when they voted on the issue in April, in the UK the penalty process continues to drag on, with none of the hundreds of suspected noncompliant operators yet to have paid the fine.

**Airlines**

Unfortunately whilst the Environment Agency were deliberating on the new guidance, the aviation part of the ETS has been effectively dismantled, with [the EU discarding 75% of the original scheme’s emissions coverage](http://www.transportenvironment.org/news/aviation-emissions-trading-slashed-75-until-2017 “”). Aviation emissions are now only included for flights between EEA airports, and no longer include Switzerland or the EEA’s outermost regions, further reducing coverage. Still, if the scheme did re-include international air travel in future (and if penalty notices were served in a timely manner) international airlines which do not comply should not at least be able to take advantage of the discretionary penalties.

However, some concerns remain; as we previously suggested, the sweeping removal of criminal penalties for corporations risks reducing the deterrent effect of the regulations. The discretion for all other penalties invites regulatory capture. The consultations, although public, have lacked a strong oppositional voice, with NGOs unwilling or unable to respond on complex policy proposals, whilst industry is well-represented. At the level of the EU Directive, there’s no clear timeline on the issuing of penalties, and so the complex process of tracking down noncompliant operators is open to further politically-influenced delays, particularly perhaps with international airlines.

**Correction on powers of entry and inspection**

It’s important to make clear that we made a mistake in the last blog, assuming the removal of powers of inspection applied to the ETS. It does not, but to the National Emissions Inventory regulations only, and the Environment Agency continue to have the power to inspect ETS operators.