Repsol Sinopec Resources UK Ltd v. Secretary of State for Business, Energy and Industrial Strategy

Summary:

An appellate regulatory body dismissed a claim that in seeking to recover over-allocated allowances under the European Union Emissions Trading Scheme (EU ETS), a UK regulator needed to "net off" other allowances to which the operator was entitled.

Appellant Repsol holds a greenhouse gas emissions permit under the EU ETS for an offshore oil-production, storage and offloading unit called Bleo Holm. Pursuant to the EU ETS, Repsol received a free allocation of allowances for the period 2012-2017 based on a historic baseline assessment of CO2 emissions from Bleo Holm, and was required to surrender sufficient allowances to cover its total emissions each year, whether the free allowances or additional allowances that had been purchased. Following an investigation, the Offshore Production Regulator for Environment and Decommissioning (OPRED) found that there had been a significant decrease in capacity at Bleo Holm and, as a result, determined that Repsol was not entitled to all of the free allowances that it had received. OPRED sought to recover the over-allocated allowances under the Greenhouse Gas Emissions Trading Scheme Regulations 2012 on behalf of the Secretary of State for Business, Energy and Industrial Strategy (BEIS). OPRED is still investigating another significant capacity reduction issue which may have resulted in an over-allocation of allowances to Repsol.

While the issues related to Repsol's allowances for 2013-2017 were under review, in December 2018, the European Commission decided to suspend the allocation of free allowances to UK operators in light of the uncertainties surrounding the UK's exit from the European Union. As a result, Repsol did not receive free allowances in 2018 as expected, and so the company had to purchase sufficient allowances to offset its emissions for that year.

In March 2019 Repsol appealed BEIS's Notice of Recovery, bringing three claims before the Tribunal General Regulatory Chamber. First, Repsol contended that BEIS should not have sought to recover the total number of allowances that had been over-allocated for 2012-2017, but rather, should have netted off the allowances that Repsol did not receive in 2018 due to the European Commission's decision to suspend the allocation of free allowances to UK operators. Second, Repsol argued that the European Commission's decision to withhold allowances from UK operators was unlawful. Third, Repsol claimed that by seeking recovery of allowances without netting off the allowances to which Repsol was entitled, BEIS violated Repsol's property rights under Article 1 of the First Protocol to the European Convention on Human Rights. Repsol asked the Tribunal to quash the Notice of Recovery.

On November 18, 2019, the Tribunal dismissed the appeal. According to the Tribunal's order, the parties agree there was an over-allocation of allowances as a result of Repsol's failure to notify BEIS of the decreased capacity at Bleo Holm, and so BEIS had the power to issue a Notice of Recovery. The Tribunal further explained that although a Notice of Recovery must provide certain information to an operator, this does not include the details of any calculation to determine the sum of allowances to which the operator is entitled. Therefore, the Tribunal reasoned, the sum of allowances does not include any netting-off calculation. Moreover, the 2012 regulations are intended to implement a strict accounting system. Given this, the Tribunal determined that BEIS did not err in declining to net off any allowances from the Notice of Recovery. The Tribunal further concluded that it lacked jurisdiction to re-interpret the European Commission's decision to suspend allowance allocations to UK operators or to declare the decision unlawful. Finally, the Tribunal held that it lacked the power to resolve Repsol's property rights claim.

At Issue: Operator challenged UK regulator's decision, under EU ETS, to seek recovery of over-allocated emissions allowances without netting off other allowances to which operator was entitled.