In ABX Air Inc v Environment Agency, an aircraft operator (ABX) appealed against an excessive emissions penalty of £382,900 imposed by the respondent Environment Agency under the Greenhouse Gas Emissions Trading Scheme Order SI 2020/1265 (the 2020 Order).
In 2002, the European Parliament and Council's commitment to achieving reductions in greenhouse gas emissions resulted in the EU Emissions Trading System (EU ETS) being established by Directive 2003/87/EC. Following the UK's departure from the EU, the UK Emissions Trading Scheme (UK ETS) was established by the 2020 Order. The UK ETS operated from 1 January 2021 on the "cap and trade" principle, whereby a cap was set on the total amount of greenhouse gases that could be emitted by sectors covered by the scheme. Participants such as aircraft operators received free allowances and/or bought allowances which were surrendered to cover their reportable emissions.
The operator had to monitor its emissions and submit a verified report of those emissions annually. Under the 2020 Order it had a further month to surrender the equivalent allowances and if an operator failed to surrender sufficient allowances, a civil penalty had to be imposed. On appeal it was considered whether the penalty provisions contravened the European Convention on Human Rights (ECHR). The Human Rights Act 1998 placed a duty on the Environment Agency and the tribunal to read and give effect to legislation compatible with ECHR rights. Imposition of the excess emissions penalty was capable of engaging the protection afforded by the ECHR.
Although imposition of the penalty was prescribed by law and pursued a legitimate aim to secure compliance with regulatory requirements, a literal interpretation of the 2020 Order contravened the ECHR. It prohibited consideration of the nature of the offending conduct to enable a fair balance to be struck between the conflicting interests. The 2020 Order also did not permit the Environment Agency to consider representations made by the operator. Although the tribunal could hear such representations before deciding an appeal, they could make no difference to the outcome. If imposing a penalty notice would be incompatible with the ECHR, it would be unlawful under the 1998 Act for the Environment Agency to impose it.
The tribunal was required to consider whether the 2020 Order could be interpreted compatibly with the ECHR. The EU ETS excess emissions penalty carried a potential defence that an operator would not be liable for the penalty if it arose from consequences that were inexorable and inevitable to the point of making it objectively impossible for the operator to comply. Such a force majeure defence could not, however, be similarly implied into the UK scheme. There was no such public law concept in the laws of its participating jurisdictions. The Order was not retained EU law. The omission of that potential defence was an unintended consequence of transposing European provisions into a purely domestic law.
The Environment Agency's interpretation that compatibility would be obtained by restoring the force majeure defence was rejected as:
The Environment Agency's interpretation did not provide the balance required by the ECHR, rather it specified factors to be weighed in that balance. Specification of such factors was the role of the legislature and went beyond the interpretative function of a court or tribunal. In the circumstances it was required for the 2020 Order to be read and given effect to as if they contained additional wording which provided that the regulator had to impose a penalty save where to do so would be contrary to the 2020 Order, or that it could withdraw a penalty if to do otherwise would be contrary to the 2020 Order.
For the question whether an operator had failed to comply with the 2020 Order, the obligation should be approached as a precedent fact to be decided on the evidence. If the operator had complied, the appeal had to be allowed. If the operator failed to comply, the statutory scheme required the appeal to be dismissed unless the imposition of the penalty would breach the 2020 Order. The tribunal had to assess whether the imposition of the penalty would establish a fair balance between the public interest pursued and the protection of the operator's right to property. The public interest in the penalty being imposed was too high and to succeed on the basis of ECHR, an operator had to establish even weightier private interests and circumstances.
"UK ETS is a carbon trading scheme that arises from longstanding and important commitments by governments around the world to combat the climate emergency. We have not been provided with any information concerning the size and financial resources of ABX Air, but compliance with such schemes is now a fundamental part of doing business as an airline operator".
"The importance of enforcing compliance with such schemes to preserve their integrity lies behind both the mandatory nature of the penalty and the high financial level at which it is set. That objective would be seriously undermined if an operator were to escape the penalty having put forward little more than its own disorganisation and lack of engagement. None of the circumstances put forward by ABX Air come close to establishing that the penalty is disproportionate".
The appeal was dismissed.
