Your Explanatory Memorandum on the above proposal was considered by Sub-Committee D at its meeting of 19 March 2008.

We warmly welcome the decision to promote the development and deployment of CCS technology, which we regard as a vital component of any attempt to stem carbon dioxide emissions.

  We note that the draft Directive is at a very early stage in the legislative process, and expect that some of the concerns you raise will be addressed in the course of European Parliament and Council negotiations. We are not clear, however, on whether you anticipate that other Member States will share your reservations with respect to the transfer of ETS liabilities to the State, and with respect to the role of the Commission in the regulatory process. We share your concerns, and would be grateful for further clarification on these points as negotiations progress.

  We also note that while an informal consultation and a stakeholder event have been conducted, no formal consultation of UK stakeholders on the proposed EU regime (rather than the domestic regime) is planned, even though the scope of the EU regime is wider than that of the proposed UK regime. We would be grateful if you could explain why you plan to proceed in this way.

  Finally, we note that a comprehensive impact assessment detailing the financial implications of the draft Directive for the UK will be prepared at a later stage. We will await that assessment, and clarification on the points raised above. In the meantime, we will hold this proposal under scrutiny.

20 March 2008

  Thank you for your letter of 20 March in which you have asked for further clarification on a number of issues. I am using this opportunity to update you as best I can at this stage.

ROLE OF THE COMMISSION IN THE REGULATORY PROCESS AND TRANSFER OF ETS LIABILITIES TO THE STATE

  You have asked whether other Member States share our concerns on these two issues. As you know, negotiations are at an early stage and we are at present only half way through the first round of discussions in working groups.

Articles 8 and 10 have been discussed once in working groups so far and from this discussion it was clear that opinions are divided on whether or not the Commission review of all draft CO2 storage permits is necessary because of the variation in the level of experience of similar industries within Member States. However, it is clear that many have not thought through the implications of what would happen if the Commission's opinion differed from their own. The Commission has indicated that in such circumstances, were a Member State not able to justify in a manner satisfactory to the Commission its reasons for acting differently to the recommendations in the Commission's opinion it would address this through the Courts. We were not in the position of having a blocking minority for complete removal of this clause so we have therefore joined with France, Netherlands, Poland and Sweden to propose alternative wording that allows Member States the option of seeking the Commission's opinion on draft permits without it being mandatory.

  We believe that as Member States start to understand the implications of the Commission's proposed role, we will see further support for this optional approach.

  Article 18 which covers transfer of liabilities to the state has not yet been covered in these discussions. However, from informal discussions it would seem that many Member States share our concerns on this issue. We are therefore working with the Commission and other Member States to determine how the State's liabilities can be minimised without compromising environmental objectives.

CONSULTATION

  We will be covering our negotiating position on the Commission's proposal as part of the forthcoming consultation on the UK domestic regime for the storage of carbon dioxide. This follows informal consultation through a widely advertised and well attended event in February and informal meetings with industry and NGOs.

IMPACT ASSESSMENT

  Finally, I am attaching to this letter an updated partial Impact Assessment with additional detail on the financial implications of the proposal for the UK. This will, of course, need to be updated as negotiations progress but will be submitted as one of the documents for the forthcoming House of Commons standing committee debate on the proposal.

28 April 2008