Kemira Chemicals (UK) Limited v Environment Agency [2026] UKFTT 963 (GRC)

[2026] UKFTT 00963 (GRC)

Case Reference: FT/EV/2025/0131

First-tier Tribunal

(General Regulatory Chamber)

Hearing Heard on: 1 June 2026

Date 29 June 2026

Environment

Heard by Cloud Video Platform

Before

JUDGE HUGHES

MEMBER MICHENER

MEMBER WOLF

Between

KEMIRA CHEMICALS (UK) LIMITEDAppellant

ENVIRONMENT AGENCYRespondent

Graham Scarborough for Appellant

Ned Westaway (counsel) for Respondent

Decision: The appeal is Dismissed

REASONS

Background

[1]The European Union adopted a system of emissions trading as part of a strategy of reducing the production of greenhouse gases in order to slow the progression of climate change. The Appellant registered an installation in Bradford where it manufactures acrylamide with effect from 21 September 2016.

[2]The Greenhouse Gas Emissions Trading Scheme Order 2020 SI 2020 No. 1265 was adopted as part of the legislative arrangements necessitated by the departure of the UK from the European Community. Regulation 26(10) provides that “No person may carry out a regulated activity at an installation in a scheme year unless the operator of the installation holds a greenhouse gas emissions permit“. Under both the European and UK schemes there is provision for free allocations of the right to emit certain levels of greenhouse gases.

[3]Under regulation 34A The UK Emissions Trading Scheme Authority (ETS) must compile a table (an “allocation table”) for the 2021-2025 allocation period and the 2027-2030 allocation period as soon as reasonably practicable after approval under Article 16b of the Free Allocation Regulation of the final annual number of allowances to be allocated in respect of installations.

[4]This appeal is brought under art. 70 of SI 2020 No. 1265 against the Respondent’s decision to issue a notice on 11 November 2025 under regulation 34v of the Order requiring the Appellant to return allowances equal to the number of allowances to which the Appellant was not entitled. The Respondent explained:

“We assessed your activity level report containing your 2023 and 2024 activity level data and determined that your average activity level over these two years has reduced when compared to your average activity level over 2022 and 2023. As your average activity level over 2023 and 2024 is now less than 15% greater than your historic activity level (HAL), your free allocation of allowances for the 2025 scheme year onwards must revert to your HAL. This means that your free allocation of allowances for the 2025 scheme year onwards must be reduced. We calculated the reduction, the UK ETS authority approved it and we notified you of the approved amount. The UK ETS authority has updated the allocation table in the Registry to show the final annual number of allowances to be allocated in respect of the installation for the 2025 scheme year onwards. Since allowances were allocated to your operating holding account in the Registry before the allocation was reduced, you have received allowances to which you are not entitled.”

[5]In its appeal Kemira Chemicals ltd (Kemira) explained:

“The Environment Agency have issued a Notice to Return Allowances which is based on a Historic Activity Level which we believe has been incorrectly calculated as a result of a failure to correctly interpret the relevant Statutory Instruments. … Basis for Kemira Appeal When the process to migrate from the previous EU Emissions Trading Scheme to the equivalent UK scheme was undertaken, incumbent sites were required to complete a comprehensive data collection exercise (NIMs). The baseline period chosen for this exercise was a five-year period from 2014 to 2018 inclusive which, according to general note (22) on Page 5 of the Free Allocation Regulations (FAR) are sufficiently long to ensure that they can be considered representative for the allocation periods which cover five years as well.”

However, Kemira only became an incumbent in the scheme part way through this baseline period, with the start date of Regulated Activities under the then EU ETS scheme being recorded in the data collection exercise as 21st September 2016; … When it came to calculating the Historic Activity Level for the Kemira site, the Environment Agency followed the requirements of Article 15 of the FAR, Historical Activity Level for Incumbent Installations, Paragraph 4 which states that: …. The key point here is the term “from an installation covered by the EU ETS” as for the first 8 months of 2016 the installation was NOT COVERED by the EU ETS, how then can that period be included in the calculation of the HAL? By ignoring this point, the Environment Agency took a straight arithmetic average of the Activity Levels in 2016, 2017 & 2018, making no adjustment for the part-year Activity in 2016: …. HAL = (63.12+307.60+318.09) / 3 = 688.81 / 3 = 229.60 GJ … Summary of Kemira Appeal It is our belief that the Environment Agency, as the Regulators responsible for the implementation of The Greenhouse Gas Emissions Trading Scheme Order 2020 (SI2020/1265), have incorrectly interpreted the Regulations around the calculation of Historical Activity Level, having failed to take into account that for a significant part of the 2016 calendar year Kemira was not an incumbent in the EU ETS Scheme. Kemira entered the EU ETS Scheme during the baseline period but the stated date for the Start of Operations under the Scheme, that being 21st September 2016, has not been taken into account when calculating the Historical Activity Level and, as a result, the HAL has been calculated in a different way than would be the case for a new entrant into the scheme after the selected Baseline period. This error in calculation of the Historical Activity Level now threatens to put Kemira at significant financial disadvantage, at a time when the UK Chemical Industry is already facing huge challenges thanks to the high cost of operating in the UK compared to other global geographies.” Basis for Kemira Appeal HAL = (63.12+307.60+318.09) / 3 = 688.81 / 3 = 229.60 GJ

Summary of Kemira Appeal

[6]Kemira’s case is very straightforward, given that operations of this installation started part way through a year the calculation of the HAL for that installation should take account of that and the denominator in the calculation should be significantly less than 3 giving a higher HAL on which to base the calculation of its free allocation. Kemira stated the outcome it sought as:

“Recalculation of the Historic Activity Level for the Kemira Bradford site which takes into account ONLY the period in which the site was an incumbent in the EU Emissions Trading Scheme. And following this, a correction in the number of free allowances allocated to the site.”

[7]In resisting the appeal, the Environment Agency (the Agency) explained “Detailed rules about the allocation of free allowances and adjustments to those allocations are set out in Commission Delegated Regulation 2019/331 of 19 December 2018 as it forms part of domestic law (the Free Allocation Regulation or FAR) and Commission Implementing Regulation (EU) 2019/1842 of 31 October 2019 as it forms part of domestic law (the Activity Level Changes Regulation or ALCR). These are EU Regulations which are now assimilated law. “

[8]The Agency explained that operators of installations could apply for a UK ETS permit. If they had been issued with a permit on or before 30 June 2019, they were designated “incumbent installations” and if the permit was issued after 30 June 2019, they were “new entrants.”.

[9]Free allocations for the period 2021-2025 were determined on activity levels during the baseline period 2014-2018. Article 15(7) of the Free Allocation Regulations provides:

“For the purposes of the determination of the arithmetic mean values referred to in paragraphs 3 to 6, only calendar years during which the installation has been operating for at least one day shall be taken into account. If a sub-installation has been operating for less than two calendar years during the relevant baseline period, the historical activity levels shall be the activity levels of the first calendar year of operation after the start of normal operation of this sub-installation.”

[10]Since the acrylamide plant had been operating for over two years the calculation of the HAL took into account the emissions over all the three calendar years during which it operated in the period 2014-2018.

[11]The Agency drew attention to the relevant guidance documents on the operation of the scheme issued by the EU. Guidance document 2 emphasised:

“All years in the baseline period in which the installation has been operating for at least 1 day should be taken into account (See Article 15(7) of the FAR).”

Guidance document 3 set out how the form recording activity levels should be completed:

“A.II.2 Baseline period chosen In this section the baseline period is chosen and the years in which the installation was operating are indicated. The operator should: a) Select the relevant baseline period for the report, in line with Article 21(4) of the FAR: for the period 2021 to 2025, the relevant baseline period to choose is 2014-2018 (this is the baseline period indicated by default by the template); for the period 2026 to 2030, the relevant baseline period is 2019-2023. b) Specify the years in which the installation was operating for at least one day in that calendar year. A calendar year is the period between 1 January and 31 December of the same year. Please indicate True or False for each year. E.g. assuming the installation started on any day in 2015, the answer for 2014 would be False, and the answer for the years 2015 to 2018 would be True.”

[12]The Agency argued that under Article 15(7) of the FAR that, if an installation has been operating for even just one day in a calendar year, the data for that year is taken into account when determining the arithmetic mean. A year may only be excluded if there was no activity at all during that year. It stressed that there was no legal mechanism or other guidance for regulators to pro-rata the data relating to a partial year.

[13]The Agency also argued that the key determinations of entitlement to free allocation were made by the UK ETS Authority which makes the determinations for the whole UK and passes responsibility for the administration of the scheme to the regulators in the different nations of the UK such as the Scottish Environmental Protection Authority in Scotland and the Environment Agency in England. The decision to reduce Kemira’s free allocation for 2025 was taken by UK ETS Authority not by the Environment Agency.

[14]Furthermore, the Notice and the UK ETS Authority’s approval of free allowances for 2025 were based upon a decision on the calculation of the HAL that was made by the UK ETS Authority in 2021. This is an historical decision being challenged by a back door route of an appeal against the notice issued by the Environment Agency. A successful challenge then would have required the UK ETS Authority to recalculate the free allowances of all the installations and sub-installations in the scheme on a consistent basis.

Consideration

[15]The Regulations provide a definition of the ETS Authority:

“Meaning of UK ETS authority, etc. 14. —(1) A reference in this Order to the “UK ETS authority” is a reference to all of the national authorities. (2) Functions conferred or imposed by this Order on the “UK ETS authority” may be exercised— (a) by all of the national authorities jointly; or (b) by one of the national authorities (or by more than one of the national authorities jointly) on behalf of the other national authorities with their agreement. …”

[16]Regulation 9 defines regulator: 9. —(1) Each of the following is a “regulator” for the purposes of this Order— (a)the chief inspector; (b)the Environment Agency M1; (c)NRW; (d)the Secretary of State; (e)SEPA.

[17]Part 8 of the Regulations provides for appeals, under Regulation 70 a person aggrieved by a decision or notice of a regulator may appeal to the tribunal. The powers of the tribunal are laid out in in Regulation 73 Determination of appeals 73. —(1) In determining an appeal under article 70, the appeal body may—(a) affirm the decision;

(b) quash the decision or vary any of its terms;

(d) give directions as to the exercise of the regulator's functions under this Order. (2) The appeal body may not make a determination that would result in a decision which could not otherwise have been made under this Order.

[18]The tribunal has paid careful attention to the reasons of the Environment Agency which has been entrusted with making this decision. The primary issue raised by the Appellant is the correct interpretation of the Regulation 15 of the FAR which requires that calendar years during which the installation has been operating for at least one day shall be taken into account. Throughout the Regulations and guidance time is treated as years, there is no suggestion of part years and in the guidance on completing the returns on activity a simple binary choice is indicated A calendar year is the period between 1 January and 31 December of the same year. Please indicate True or False for each year. E.g. assuming the installation started on any day in 2015, the answer for 2014 would be False, and the answer for the years 2015 to 2018 would be True. - The system for reporting and allocating emissions and allowances is based on whole years, not parts of years.

[19]Accordingly, the tribunal is satisfied that the Appellant’s ground of appeal is not made out and so the appeal fails.

[20]In addition to the question of interpretation and how part years of operation should be considered; the EA resisted the appeal on two further grounds.

[21]The Notice Kemira challenged simply implemented a decision of the UK ETS Authority to adjust Kemira’s free allocation for 2025 – the decision on the allocation adjustment was taken by the UK ETS Authority, not by the EA. The UK ETS Authority was standing in the place of the European Commission in the EU scheme; the EA argued:

“The UK ETS Authority has inherited that role as against the UK regulators (the EA, Natural Resources Wales, the Scottish Environmental Protection Agency, the Department of Agriculture, Environment and Rural Affairs (NI) and the Offshore Petroleum Regulator for Environment and Decommissioning). It is no more possible to challenge the UK ETS Authority’s approval of adjustments in an Article 70 appeal than it would have been to challenge the European Commission’s equivalent function.”

[22]While the tribunal has some sympathy with the Appellant in dealing with the complexities of the situation after withdrawal from the EU it is clear that the function of determining the allocation of allowances is now determined by the UK ETS Authority and not by the EA. Accordingly, a challenge to that reduction in allowances does not lie against the EA, which is the conduit for relaying the decision and which does not have the function of determining the levels of allocation.

[23]The EA further argued that both the Notice and the UK ETS Authority’s approval of free allowances for 2025 were based upon a decision on the calculation of the HAL that was made by the UK ETS Authority and published in May 2021. If the calculations had been carried out on the basis which Kemira argued its free allocations in subsequent years would have been lower than it received. The EA argued that the approach of Kemira would undermine the integrity of the entire system and that the tribunal lacked jurisdiction to make this decision on the 2021 determination.

[24]The tribunal is satisfied as to the force of these arguments and accordingly finds that the appeal must fail on these grounds in addition to the interpretation of the part year ground. Signed Date: Hughes 26 June 2026