Brexit-Alert: Producing or Trading F-gases?

As we slide out of the Brexit transition period and into a new UK regulatory world, the law around the containment, use, recovery and destruction of fluorinated greenhouse gases ("F-gases") – the most common being hydrofluorocarbons ("HFCs") – will change.

Currently, in the EU all is regulated by Regulation (EU) No 517/2014. That includes the UK up to and including 31 December 2020. As of 1 January 2021, however, the UK will regulate F-gases at its own national level. Although we can expect the vast majority of the rules to remain the same, we anticipate that Brexit will have consequences on the management of the quota system and the reporting obligations.

If you produce, supply, import, export or use bulk F-gas or manufacture or import equipment containing such gas, these are some of the changes you need to be aware of.

The quota system

Before 31 December 2020

You will still be bound by all the rules laid down in Regulation (EU) No 517/2014. Therefore, amongst other things, you need to be registered in the EU HFCs registry and be the holder of a quota, allocated by the European Commission in accordance with Article 16(5) of the Regulation, in order to be able to place HFCs on the EU and UK markets.

After 1 January 2021

In terms of the quota allocation:

• In the EU, this means that if you are a company based in the UK, you will, as with any other non-EU company with a legal representative in the EU, continue to receive quotas for placing HFCs on the EU market based on your historic market shares in the EU-27 market or based on a declaration of intent as regards the placing on the market of HFCs.
• In the UK, this means that you will need a new UK HFC quota to place on the UK market HFCs equivalent to 100 tonnes or more of carbon dioxide (CO₂) per year. This total will include any imports to the UK from the EU. The UK Environment Agency will manage a new UK F-gas system, including UK HFC quota allocation which you will use to apply for the quota and report on your activities.

In terms of supplying customers from those quotas:

• If you intend to supply your HFC stocks held in the EU on exit day to a customer in the UK after 1 January 2021, you will need to use the post-1 January 2021 UK quota. This applies even if you had previously used the pre-1 January 2021 EU quota and the HFCs were in free circulation in the EU before 1 January 2021.
• If you intend to supply your existing UK-based HFC stocks to a third party in the UK after 1 January 2021, you do not need to use the UK quota if they have already come out of your pre-1 January 2021 EU quota or have been in stock since before 2015. However, you need to use the UK quota if you produced or imported them after 31 December 2014 and they have not already come out of pre-1 January 2021 EU quota

In terms of registration:

• It is important to note that the UK Environment Agency will register you on the new UK F-gas system and allocate a quota to you if (a) you placed HFCs on the UK market legally in the years 2015, 2016 or 2017; (b) you provided data to the Environment Agency, verified by an independent auditor, giving the quantities of HFCs you placed on the UK market in those years; and (c) your business is established within the UK or has appointed an ‘only representative’ which is established in the UK.
• The UK Environment Agency will take the view that you have placed HFCs on the UK market if you: (a) used your existing EU quota to import HFCs to the UK; or (b) used your existing EU quota to supply HFCs to someone in the UK; or (c) did not need to use EU quota to supply HFCs to someone in the UK because it was already in free circulation in the EU27 market and you owned the gas at the point it entered the UK.
• Helpfully, the UK will authorise you to apply to exchange your unused EU authorisations, including delegated authorisations, for UK authorisations to place F-gas  pre-charged equipment on the UK market after 1 January 2021.

Reporting obligations

Before 31 December 2020

Under current EU rules, according to Article 19(1) of Regulation (EU) No 517/2014, producers, importers and exporters of F-gases are under an obligation to submit annual reports by 31 March. This obligation also applies to undertakings established in third countries. For the reporting on the years starting after the end of the transition period, the following rules will apply.

After 1 January 2021

• If you are established in the UK and import to or export fluorinated greenhouse gases from the EU, you are considered to be established in a third country. You will have to file a report through an EU-based only representative. You will have to do so if you produce, import or export one or more metric tonnes of F-gas, or a quantity of F-gas equivalent to 100 tonnes or more of CO₂  or destroy an F-gas equivalent to one metric tonne or 1,000 tonnes of CO₂ or more.
• If you are established in the EU, you will have to report shipments from or to the UK as imports to or exports from the EU.

The type of data you will need to enter will be similar to the EU registry. The Environment Agency will publish guidance on how to use the UK F-gas reporting system once the UK leaves the EU.

Conclusion and top tip

Compliance will suddenly become a little more complicated than you have been used to – there will be more paperwork and some organizational changes perhaps which, apart from anything else, will mean more costs. If you want to keep on top of the dual regime that will come into play as of 1 January 2021, ask one of our lawyers.