Seòmar agus comataidhean

I have no need to sum up.

Motion agreed to.

I could not possibly answer that. I do not know what will make changes to the cost. There will be other factors involved in the cost of fertiliser, not least the cost of fuel, which has an impact on the cost of anything that is imported.

I find it impossible to say with any certainty what it will do to the cost of anything. My officials can maybe come in and assist me, but, according to the business impact assessment that has been done on the instrument, it is about protecting businesses in the UK. There are many factors that would increase the cost of fertiliser, not least energy security issues or global impacts, but I do not see the instrument making any material difference in that respect.

I am not entirely sure that this particular instrument does anything to incentivise or otherwise. It is not really about that. As Lucy has just said, the main thing is the phasing out of the free allocations as the CBAM is brought in. If there is any incentivisation, it is about the fact that, for example, we are not disadvantaging hydrogen producers in this country in favour of importers of hydrogen that comes from more high-emitting processes. I really do not think that the SI does anything in the way of incentivisation. It really is about protecting and, as has been pointed out, giving fair notice of the CBAM implementation and the gradual phasing out of the free allocations in a way that will not put businesses at a disadvantage.

I will bring in Norman Munro, because he knows all the vehicles that might be available to the UK Government. However, the error does not impact the working of the SI at all—it just duplicates the meaning of another term.

Norman, could you take us through the solutions that have been presented?

Yes. The instrument addresses issues that have been brought to the attention of all four Governments. One thing that the instrument does is to mitigate the impact of the two years in which Covid inactivity was highest—the instrument adjusts that so that businesses do not have to take it into account. It also updates the benchmarks that are used for free allocation to reflect emissions efficiency improvements. That involves looking at emissions efficiency for each applicant. The instrument will also enable the reduction of free allocation annually in the period from 2027 to 2030 for some installations that will be covered by the CBAM. It is, in effect, a phased approach for which businesses can plan.

I will give you the exact phrasing. The issue relates to the term “relevant period”; “scheme year”, which is meant to replace the word “period”, has been inserted, so the extraction of the word “period” is required.

Yes, thank you, convener. I think that it would be helpful for me to make a short statement to take us through the instrument.

I am pleased to provide evidence supporting the draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026. The UK emissions trading scheme authority, which is formed by the four nations of the UK, is implementing changes to strengthen the climate ambition of the ETS while protecting our businesses and industries. These technical changes focus on the methodology for distributing free allocation of UK ETS allowances. This is the UK’s primary policy instrument to address carbon leakage—that is, when emissions move to another jurisdiction with lower carbon prices.

As the committee will be aware, ETS participants must purchase an allowance for each tonne of COthat is emitted. However, some allowances are given free to sectors that are deemed at risk of carbon leakage. The ETS authority has consulted extensively on the free allocation policy to ensure that, crucially, it is working to incentivise emissions reduction and protect energy-intensive trade-exposed industries from the risk of carbon leakage.

The authority published a consultation response in November last year outlining changes for the next free allocation period from 2027, and the instrument will implement the commitments that are included in that response. I will go through each of them.

First, operators can choose whether to exclude activity data for 2020, or 2020 and 2021, from historical activity level calculations to account for Covid-19 impacts. The concerns of stakeholders about the impact of Covid-19 have been heard. Consequently, the instrument will ensure that operators’ historical activity level is representative so that operators do not lose out on free allowances due to the impact of Covid on production in many sectors.

Secondly, the instrument will update the benchmarks that are used to calculate free allocations: it will retain current benchmarks for 2027, with the intention of adopting European Union benchmark values from 2028. This will ensure that recent emissions efficiency improvements are reflected in free allocations, while aligning with the EU—which is the Scottish Government’s position, and called for by stakeholders—to support linking negotiations.

Thirdly, to ensure that all carbon leakage mitigation measures work cohesively, including ETS free allowances and the UK carbon border adjustment mechanism, the instrument will gradually reduce free allocation for sectors that are covered by the UK CBAM—the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors—to ensure a smooth transition for those sectors.

Finally, a clarification to current legislation makes clear to operators of installations that cease to be free allocation installations as a result of either permanent cessation, as is currently provided for, or the surrender or revocation of the operator’s permit, that, even if they cease operations before the end of the relevant scheme year, they are required to report final year activity levels. This requirement will ensure that free allocations align with actual emissions and prevent overallocations.

These technical changes will ensure fairness and accuracy in free allocation distribution, while continuing to support those sectors.

I have to let the committee know that I am aware that the Welsh Senedd’s Legislation, Justice and Constitution Committee has identified a minor error with the instrument. The issue does not impact the operability of the instrument. One word—“period”—should have been erased as it is being replaced by another term.

The authority is working to determine the best option for amending the instrument, seeking resolution at the earliest opportunity, and the Scottish Government is working with other members in the authority to ensure that we improve the ETS SI drafting and legislative process in future. However, as I said, the issue does not have any material impact on the operation of the instrument.

I am happy to answer any questions that the committee might have.

I will need to write to you once we have bottomed out the method by which we will take this forward. We are still looking at the potential methods. Whether we use a correction slip or something else, we will write to let the committee know.

I agree with that, but I would also expand it. As you rightly said, the Scottish Parliament agreed to national planning framework 4, which set the narrative that we want to facilitate as much low-carbon energy as possible to reduce our emissions, but also for energy security reasons. The Scottish Government does not have responsibility for energy security, but we have an interest in it. We also have an interest in economic growth in Scotland, making sure that we provide jobs for the future and that we have an energy industry in Scotland that is able to adapt and pivot to new energies.

So, yes, we set a narrative, but Parliament also set a narrative by agreeing to NPF4, which gives guidance to planning authorities throughout the land—at local authority level and more generally—on what is expected in relation to planning applications.