ABX AIR, Inc v Environment Agency

This appeal concerns a penalty of £382,900 imposed by the Environment Agency upon ABX Air, Inc. It is one of the first penalties issued under the United Kingdom’s Emissions Trading Scheme. The Tribunal has had to decide how it should approach the appeal, particularly in light of Article 1 of the First Protocol to the European Convention on Human Rights.

As long ago as 1992, the United Nations Framework Convention on Climate Change recognised the need for “stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.” In 1997, the Kyoto Protocol was formulated to implement that objective. In 2002, the European Parliament and Council expressed a commitment to achieving an 8% reduction in greenhouse gas emissions over the following decade and a 70% reduction in the longer term. This resulted in the European Union Emissions Trading System, the EU ETS, being established by Directive 2003/87/EC. The United Kingdom was instrumental in the development of EU ETS, and the Environment Agency responsible for its domestic implementation and administration.

Following the United Kingdom’s departure from the European Union, the UK Emissions Trading Scheme was duly established by the Greenhouse Gas Emissions Trading Scheme Order 2020. It began to operate on 1 January 2021 and like its EU equivalent is a ‘cap and trade’ scheme. The Department for Energy Security and Net Zero describes such schemes as follows: (Footnote: ¹)

As set out in the evidence before us, the UK ETS is intended to be “at least as ambitious” as the EU ETS and to “provide a smooth transition for relevant sectors” (Footnote: ²).

The Order places overall responsibility for the scheme on the UK ETS Authority, made up of the national authorities of each constituent part of the UK: the Secretary of State; the Scottish Ministers, the Welsh Ministers and the relevant Northern Ireland department. In practice, the work of the UK ETS Authority is divided up between them.

The UK ETS Authority is required by Schedule 5A of the Order to establish the UK ETS Registry:

For the aviation industry, with which this appeal is concerned, Article 11 assigns a ‘regulator’ to each aircraft operator dependent on where it is based. The Environment Agency regulates operators based either in England or outside the UK. It is also responsible for administering the UK ETS Registry for the whole of the UK.

An ‘aircraft operator’ is defined by Article 6. In the majority of cases, an aircraft operator is one that operates over a certain number “full-scope flights”, or that cause emissions over a certain threshold. A “full-scope flight” is one:

An aircraft operator, as so defined, has four principal obligations:

Operators usually obtain the allowances they require from participants in the UK carbon market that hold trading accounts in the UK ETS Registry, although in some cases operators may qualify for a free allocation of allowances. Allowances can be surrendered by either the authorised representative appointed in relation to the AOHA, or by the Environment Agency “in accordance with instructions from account holders”, by virtue of paragraph 6(1)(c) of Schedule 5A. The registry is accessed using an online reporting and management portal called ETSWAP.

If an operator fails to comply with an obligation imposed upon it by the scheme, the Order enables the regulator to impose a civil penalty.

The obligation to surrender sufficient allowances is provided by Article 34(1):

Article 52 provides (so far as relevant):

Article 47(2) provides that where an operator is liable to the excess emissions penalty as defined above, the regulator must impose a civil penalty. This is done by giving a penalty notice, which renders the civil penalty recoverable as a civil debt. Likewise, while Article 48 gives the regulator power to amend or withdraw most types of penalty notice, it specifically excludes that power in the case of an excess emissions penalty.

On the plain words of the Order, it therefore appears that if an operator fails to surrender sufficient allowances then a civil penalty must follow. Once the fact of the failure to surrender is established, there can be no defence or mitigation. Neither the operator nor the Environment Agency would have any no room for manoeuvre. Nor would the Tribunal be able to intervene, Article 73(2) prohibiting it from determining an appeal by making any decision which could not otherwise have been made under the Order.

ABX Air argues that the circumstances leading up to the penalty under appeal are such that its imposition would be contrary Article 1 of the First Protocol to the European Convention on Human Rights (“A1P1”). The Environment Agency accepts that applying the statutory provisions as interpreted in the above paragraph might, in some cases, give rise to a contravention of A1P1. It does not accept that it would do so in the present case. Both parties agree that deciding this appeal requires the Tribunal to determine how the Order ought to be read and given effect in a way that is compatible with A1P1.

The full text of A1P1 is as follows:

Section 3(1) of the Human Rights Act 1998 places a duty upon both the Environment Agency and the Tribunal to read and give effect to legislation in a way which is compatible with the Convention rights, including A1P1. In Poplar Housing and Regeneration Community Association Ltd v Donoghue [2001] EWCA Civ 595 at [75], Lord Woolf CJ made the following points concerning the section 3 duty:

While those observations are obiter, and this Tribunal is not concerned with making any declaration of incompatibility, we see no reason not to apply them. Therefore, the Tribunal’s first task is to ascertain whether the literal application of the relevant provisions in the Order could, in principle, give rise to a breach of A1P1. The parties are agreed on the issue, but we should nonetheless set out our own assessment.

In approaching this issue, s.2 of the 1998 Act requires us to take account of decisions made by the European Court of Human Rights. In Krayeva v Ukraine 72858/13 (Judgment : Article 1 of Protocol No. 1 - Protection of property : Fifth Section) [2022] ECHR 41, the Court considered a Ukrainian law imposing a mandatory fine for breach of certain customs regulations, fixed in the sum of 100% of the value of the goods concerned.

Citing previous Strasbourg authority, the Court first confirmed at [19] that the imposition of a fine is capable of engaging the protection of property afforded by A1P1. We see no reason to distinguish between a “fine” and a “civil penalty” in this context. While English law may use the former term in criminal proceedings and the latter in a regulatory setting, for present purposes we see no material distinction between the two. Each is a mandatory financial penalty, and the enforcement powers available to the state include seizure and sale of other property in its satisfaction. We hold that imposition of the excess emissions penalty under the Order is capable of engaging the protection afforded by A1P1.

The Court, at [24], next noted that the second paragraph of A1P1 expressly allows the state to control the use of property to secure the payment of taxes or other contributions or penalties, but that to be compatible with the first paragraph a measure must fulfil three conditions: it must be lawful, pursue a legitimate aim and must strike a fair balance between the general interest of the community and the individual’s fundamental rights. It went on to accept that the fine fulfilled the first two conditions, being lawful and in pursuit of the legitimate aim of ensuring payment of taxes.

We consider that the first two conditions are easily fulfilled in the present case. The imposition of the penalty is prescribed by law, the Order having been properly made in council in accordance with the requirements set out in the Climate Change Act 2008. It further pursues a legitimate aim, being to secure compliance with regulatory requirements. Importantly, those requirements are in support of the protection of the environment, the importance and legitimacy of which has been recognised in Strasbourg jurisprudence, see O’Sullivan McCarthy Mussel Development Ltd v Ireland - 44460/16 (Judgment : Remainder inadmissible : Fifth Section) [2018] ECHR 471 at [109].

It is the Court’s treatment of the third condition, proportionality, that is of importance in the present appeal. It held as follows:

As it is cited in the above extract, we have also considered the Court’s decision in Gyrlyan v. Russia - 35943/15 (Judgment : Article 1 of Protocol No. 1 - Protection of property : Third Section) [2018] ECHR 816. At [24], the Court held that while A1P1 contains no procedural requirement, in addressing whether a contravention has occurred:

At [31], it concluded that the Russian law in question:

Taking account of these judgments of the European Court, we agree with the parties that a literal interpretation of the Order (insofar as it concerns the excess emissions penalty) contravenes A1P1. Like the penalties considered in Krayeva and Gyrlyan, it prohibits any consideration of the nature of the offending conduct so that a fair balance can be struck between the conflicting interests at stake. Nor, we observe, does the Order permit the Environment Agency to take account of any representations on that subject that might be made by the operator. While the Tribunal is able to hear such representations as it thinks fit before deciding an appeal, on the literal interpretation of the Order those representations could make no difference to the outcome.

We still question whether a requirement to apply section 3 necessarily follows. Section 6 of the 1998 Act provides, so far as relevant:

If imposing a particular penalty notice would be incompatible with A1P1, it would be unlawful under section 6(1) for the Environment Agency to do it. This is unaffected by it being a mandatory result of the Order, which is secondary (rather than primary) legislation.

Nonetheless, we recognise that we were not addressed on this point and that both parties put their cases on the basis that some form of words must be read in to the Order to meet the 1998 Act’s requirements. We therefore turn to section 3 of the 1998 Act to determine whether the Order can be interpreted compatibly with the Convention.

In applying section 3 we pay careful attention to the speech of Lord Nicholls in Ghaidan v. Godin-Mendoza [2004] UKHL 30, and in particular the following:

As well as recognising that this is secondary legislation rather than an Act of Parliament, relevant to identifying the “underlying thrust” of the legislation is the way in which the present situation came about. It is well established that interpretation of legislation should take into account “the historical context of the situation which led to its enactment”: R. (Quintavelle) v Secretary of State for Health [2003] UKHL 13, at [8].

The UK ETS is functionally similar to the EU ETS, and by reference to the evidence provided we accept the Environment Agency’s submission that the former was intended to follow the latter very closely. As noted at paragraph 4 above, one objective in formulating the scheme was to enable a “smooth transition” for operators. Article 16(3) of the Directive provides that:

Like the Order, this comes with no explicit defence. It is, however, subject to the general EU law principle of force majeure. Unlike its namesake in English law of contract, it a principle that applies equally in public law. It was considered in relation to Directive 2003/87 by the Court of Justice in Billerud Karlsborg AB v Naturvardsverket [2013] EUECJ C-203/12. Rejecting arguments by two Swedish operators, the Court held that the penalty at Article 16(3) for failure to surrender sufficient allowances still applied where the operator could show that it did hold sufficient allowances at the relevant time. The Court also rejected an argument that the Directive permitted the penalty to be varied by a national court on the basis of proportionality. In reaching those conclusions, it observed that:

A more detailed discussion of the EU principle of force majeure can be found in Eurofit SA v Bureau d'intervention et de restitution belge (BIRB) [2013] EUECJ C-99/12. While this case does not specifically concern the EU ETS, we have found the following summary of the principle to be of assistance:

It can therefore be seen that the excess emissions penalty in the EU ETS does carry a potential defence: 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 with the obligation. A force majeure defence cannot, however, be implied into the UK ETS in the same way – there is no such public law concept in the laws of its participating jurisdictions. The Order is made under the Climate Change Act 2009 and is not retained EU law. We accept that Environment Agency’s case that the omission of this potential defence is an unintended consequence of transposing European provisions into a purely domestic law.

For the above reasons, an interpretation which provides a limited form of defence in order to comply with A1P1 would not be so incompatible with the “underlying thrust” of the legislation as to make it impossible.

Having identified an incompatibility, and the context in which it arose, how does section 3 of the 1998 Act require the Tribunal to interpret the Order? ABX Air makes no suggestions, leaving the matter to the Tribunal. The Environment Agency argues that A1P1 compatibility would be obtained by reviving the force majeure defence. It suggests that Article 34 be read as if contained the following additional text, shown as underlined:

This would, argues the Environment Agency, preserve the very limited and narrow scope for a successful defence that was a feature of the European legislation, and is consistent with the important aims of the domestic scheme. To illustrate the importance of maintaining the integrity of the scheme, we were taken to some examples of where a force majeure defence under the EU ETS had been rejected; the Environment Agency is unaware of any occasion on which it has been successful.

We are unable to accept the Environment Agency’s interpretation. First, our power begins and ends with reading the Order in a way which is compatible with Convention rights. Any words to be read in to the legislation can do no more, and no less.

Second, we have been shown no authority to support the proposition that making a force majeure defence available would be sufficient to render the Order A1P1 compliant. If an operator fails to show that compliance was objectively impossible, it loses. There remains no room for the balancing exercise of the type described in Krayeva and Gyrlyan. Nothing in those authorities justifies restricting the factors that might weigh against imposing penalty to impossibility of compliance. The lack of any previous challenge to an excess emissions penalty under EU ETS by reference to A1P1 does not mean that such a challenge would be without merit.

Third, the different focus of the force majeure defence likewise risks it having effects beyond that which is required to secure compliance with A1P1. While penalising conduct that arose from force majeure would be very unlikely to satisfy A1P1, we cannot say that it is inconceivable. In that situation an operator would benefit from a defence created only because the Tribunal had taken on the role of legislator, contrary to the warning given by Lord Woolf in Donoghue.

Fourth, and most fundamentally, we see no justification for importing force majeure into what is accepted to be wholly domestic legislation. Neither ordinary principles of statutory interpretation nor section 3 operate to resolve non-compliant legislation by looking around for a way in which it is done somewhere else, then importing that wholesale. Why must impossibility be objective rather than subjective? Why must the consequences have been unavoidable even if all due care had been exercised? None of these requirements arise from domestic or Convention jurisprudence.

Properly understood, the Environment Agency’s suggested interpretation does not provide the balance required by A1P1, but rather specifies factors that must weigh in it. There is nothing inherently objectionable about legislation specifying such factors, and indeed the weight that they should normally carry: see, for example, the provisions concerning the Article 8(2) balancing exercise discussed in Rhuppiah v Secretary of State for the Home Department [2018] UKSC 58 at [49]. But specification of such factors is the role of the legislature (or the executive under delegated legislative powers) and goes well beyond the interpretive function of a court or tribunal under section 3 of the 1998 Act.

In the circumstances, we consider that section 3 requires nothing more than for Articles 47(2) and 48(4) to be read and given effect as if they contained the following additional, underlined words:

This may be disappointing to the Environment Agency, which in its submissions has sought to have it recognised on the face of the Order that there is a very high threshold before an operator can avoid an excess emissions penalty. Yet the consequences of having a domestic scheme, implemented by domestic legislation, include having its principles established by that legislation being interpreted and applied by domestic courts and tribunals. If principles of EU law were intended to apply, then this would have been specified in legislation.

Finally, for completeness on this topic, we see no basis upon which A1P1 demands that the Environment Agency is able to impose a lesser (as opposed to no) penalty. The size of the penalty that would result from imposing the penalty is simply a factor to be considered when deciding whether to impose it at all, and there are already several regulatory provisions in the field of environmental regulation that operate in this way: see, for example, the legislation discussed in Environment Agency v Amphenol Invotec Ltd [2022] UKUT 318 (AAC).

The Order does not provide any specific approach to be taken by the Tribunal on this appeal, nor specify the grounds on which such an appeal should be brought. In R. (Begum) v Special Immigration Appeals Commission [2021] UKSC 7 at [68] it was held that appellate tribunals cannot generally decide how a statutory discretion conferred upon the primary decision-maker ought to have been exercised, or exercise the discretion themselves, in the absence of any statutory provision authorising them to do so. Instead:

We see no basis upon which this appeal should be approached differently. In an excess emissions penalty appeal, the first question is likely to be whether the operator did in fact fail to comply with the obligation at Article 34(1). Applying the principles discussed in R. (A) v London Borough of Croydon [2009] UKSC 8 (in particular at [26] to [27]), we consider that this should be approached as a precedent fact that the Tribunal decides for itself on the evidence. If the operator did comply with Article 34(1) then the appeal must be allowed.

If the operator failed to comply with Article 34(1), then the statutory scheme requires the appeal to be dismissed unless the imposition of the penalty would breach s.6(1) of the 1998 Act. Krayeva and Gyrlyan explain that the decision maker (and the Tribunal on appeal) must assess whether, in the individual circumstances, 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. This includes the consideration of the operator’s conduct when failing to comply with Article 34(1). While no such assessment was carried out by the Environment Agency in the present case, this is remedied by ABX Air having been able to make its A1P1 argument on appeal.

In performing the above balancing exercise, the public interest in maintaining the integrity of UK ETS must be afforded proper weight. As was noted by the Court of Justice in Billerud, at [36], the EU ETS:

Likewise, with reference to the surrender obligation, the Court of Justice in Billerud observed that:

The United Kingdom was a full participant in the legislative choice described by the Court, and in formulating the documents it cites. The adoption of similar provisions in the UK ETS, and the mandatory nature of the excess emissions penalty, illustrates continued support for those principles. This conclusion is further supported by the statement in the July 2019 consultation that the UK ETS should have “an equally robust and proportionate enforcement system” as that in place for the EU ETS. Taking this together with the historical context of the legislation, from the UNFCCC, through the Kyoto Protocol, Council conclusions and resolutions, to the Directive, and now the UK ETS, we consider that the public interest in the excess emissions penalty being imposed is very high indeed. This is supported by O’Sullivan McCarthy Mussel Development Ltd and the other authorities discussed therein.

To succeed on the basis of A1P1, an operator must establish even weightier private interests and circumstances on the other side of the scales. The circumstances that would establish a force majeure defence may qualify, but others will be fact-sensitive and must be identified in individual appeals. We predict that they will be rare, but each case will turn on its own facts.

Accordingly, we turn to the circumstances of the present appeal.

The appeal was heard by CVP, together with another excess emissions appeal penalty brought by Gullivair Limited under reference NV/2022/0063/GGE. Our decision and reasons on that appeal will be given separately. ABX Air did not attend the hearing, having confirmed that it was content to rely on its written submissions. Nor has it provided a witness statement in support of its factual assertions. We have nonetheless taken careful account of its written case, and have independently and critically analysed the evidence and arguments put forward by the Environment Agency.

The Environment Agency provided witness statements from Mike Higgins and John Insole, both of whom are Senior Technical Officers involved in implementing and administering UK ETS. A witness statement was also provided by Ruth Welsh, its lawyer with conduct of the present appeal. Each witness attended the hearing and confirmed the truth of their witness statements.

At the hearing we requested some further information on the Environment Agency’s workload at the material time, which was provided and sent to all parties after the hearing.

The following findings of fact have been made according to the standard of the balance of probabilities, based on the witness and documentary evidence we have received. There is little difference between the parties’ factual cases, and we indicate below where it has been necessary to resolve any conflict.

The Environment Agency has evidenced the following efforts to ensure that operators were aware of the need to take part in UK ETS, and its requirements:

The contents of Issues 6.2 and 6.3 of the newsletter are particularly relevant to this appeal. Issue 6.2 begins:

The context in which this newsletter was sent is that the practice at the Environment Agency had been to open the AOHA only after approval of the EMP. This meant that any delay in approving EMPs pushed operators closer to the surrender deadline which, as pointed out by the Environment Agency in a previous newsletter, it had no power to extend. Furthermore, under paragraph 2 of Schedule 3, the Environment Agency was required to determine an application for EMP within two months of receipt, or such longer period as may be agreed in writing with the operator.

Issue 6.2 therefore set out a “Revised Process”, where an AOHA would be opened on receipt of the application for an EMP. This meant that, in this first year of UK ETS, an operator would not have to wait until approval of its EMP before it could obtain an AOHA and surrender its allowances. The Revised Procedure was explained in the newsletter as follows: (emphasis in the original)

That revised procedure was permitted by paragraph 1 of Schedule 5A, already set out earlier in these reasons.

Again, the key deadlines of 31 March 2022 and 30 April 2022 were highlighted in the newsletter. Also pointed out was the fact that 30 April 2022 fell on a Saturday, meaning that no assistance with the process could be provided after 4pm on 29 April 2022. The excess emissions penalty of £100 per allowance was reiterated, and that if the operator had any questions it should contact the helpdesk.

Issue 6.3 is much briefer, we infer because it was aimed at operators who had not begun to comply with UK ETS at all. It sets out the relevant deadlines and how an excess emissions penalty would be calculated in stark terms.

On 11 March 2022 the Environment Agency wrote to operators who might require it to surrender allowances on their behalf, asking whether they wished to make use of the LoA procedure. Those that did were sent a pro forma on 11 April 2022 with a return deadline of 18 April 2022. Another chasing email was sent on 20 April 2022 to those operators who risked failing to comply with the surrender deadline, alerting them to the need to take immediate action.

In April 2022, as the surrender deadline loomed, the Environment Agency was dealing with a significant number of operators whose EMP applications have been made but not yet determined. A decision was therefore made to concentrate resources on ensuring that operators are in a position to surrender their allowances by the deadline, and approve any outstanding EMP applications later.

ABX Air is a corporation incorporated under the laws of Delaware and headquartered in Wilmington, Ohio. It operates cargo flights. We agree with the Environment Agency that ABX Air’s narrative grounds of appeal can be summarised as putting forward three reasons why it did not surrender the required allowances by the deadline:

In order to address these assertions, we make the following findings of fact.

The Director of Safety & Compliance at ABX Air contacted the Environment Agency on 23 March 2021, via its email helpdesk, seeking information about UK ETS compliance. The Environment Agency responded two days later by sending a copy of Issues 1, 3 and 4 of the newsletter described above, and inviting any additional questions. ABX Air acknowledged receipt.

On 27 August 2021 ABX Air responded to a request for user details for the ETSWAP portal. It gave two individuals’ email addresses as those who would “deal with volunteering and reporting requirements of UK ETS”. On a date in December 2021 (the exact date appears to have been mistakenly redacted from our copy) ABX Air was sent Issue 5 of the newsletter.

On 21 February 2022 ABX Air sent the following email to the helpdesk:

Mike Higgins responded the same day with the following:

We pause to note that ABX Air had been required to make its application by 12 February 2021, and could have easily ascertained that deadline from Issue 1 of the newsletter sent to it on 23 March 2021. On 22 February 2022 ABX Air was sent Issue 6.3 of the newsletter.

ABX Air’s EMP application was submitted and the relevant fee paid on 25 February 2022. Its AOHA was opened on 25 March 2022 and on 28 March 2022 it used ETSWAP to report its aviation emissions for the 2021 scheme, totalling 3,829 tCO₂e.

On 11 April 2022 the Environment Agency sent an e-mail to ABX Air attaching a pro forma Letter of Authority, according to the LoA Procedure. We do note that the wording of the email seems to assume that ABX Air had received Issue 6.2 of the newsletter, explaining the LoA Procedure. As ABX Air had not submitted its EMP at the time, it had in fact received Issue 6.3. Nonetheless, the email of 11 April 2022 could not be clearer that the Letter of Authority must be returned by 18 April 2022 if the Environment Agency were to surrender allowances on ABX Air’s behalf by the surrender deadline. We consider that any reasonable recipient of the email would appreciate that some form of action was required, even if clarification had to be sought.

On 19 April 2022 the Environment Agency wrote to ABX Air requesting its agreement to an extension of the two-month deadline within which the Order requires the Environment Agency to determine an EMP application. A conversation took place on the following day concerning approval of the EMP and access to ETSWAP. ABX Air agreed the extension requested by the Environment Agency.

The offer to surrender allowances on ABX Air’s behalf if a Letter of Authority was submitted was repeated on 20 April 2022, after the deadline expressed in the e-mail of 11 April 2022 had passed, and asking that the Letter of Authority be submitted “immediately if you want the Registry Administrator to surrender on your behalf for the 2021 Scheme Year.” We do not set out the e-mail at length, but find that the surrender deadline of 30 April 2022 (as well as 4pm on the previous day being the latest that assistance could be provided) could hardly have been made clearer.

ABX Air’s EMP was approved on 25 April 2022, and this was notified by email. On 28 April 2022 Mike Higgins telephoned ABX Air, but his call was unanswered. He left a voicemail urging ABX Air to return the Letter of Authority so that the Environment Agency could surrender the necessary allowances. There was no response before the surrender deadline. Nor, in any event, had ABX Air delivered sufficient allowances to its AOHA for the Environment Agency to surrender on its behalf.

On 20 May 2022 ABX Air replied to the email of 25 April 2022, referring to the improvements that the Environment Agency had suggested to its EMP and asking that once they had been addressed the Environment Agency:

That concludes the relevant chronology, and we return to ABX Air’s arguments on appeal.

First, ABX Air argues that it was not granted access to its AOHA before the surrender deadline so that it could appoint a representative and surrender its allowances. This is not accepted by the Environment Agency, but do not need to make a finding on this point. The correspondence of 11 and 20 April 2022 made it clear that the surrender deadline continued to apply, and that in the absence of an authorised representative the LoA Procedure was the only way in which an operator in ABX Air’s position could meet it. In its skeleton argument for the hearing ABX Air argues that it:

This claim that documentation was not received is inconsistent with the claim that it was not understood. While ABX Air’s correspondence in response to the Notice of Intent repeats the assertion that the LoA Procedure documentation was not received, its Grounds of Appeal include the following:

This appears to accept that the emails implementing the LoA Procedure were sent to ABX Air. Given this inconsistency in the presentation of ABX Air’s case, and the lack of any evidence to support the assertion that the LoA Procedure emails were not received, we find that they were received. We also note an internal email dated 23 March 2022 opening AOHAs for several operators (including ABX Air) and stating that newsletter Issue 6.2 would be sent to them. While we do not have the email to ABX Air in which this was done, we find on the balance of probabilities that it was. We find, as is accepted by the Environment Agency, that ABX Air did not appreciate the significance of the LoA correspondence and that it misunderstood the agreed extension for the EMP application determination as also extending the surrender deadline.

While we find that ABX Air made genuine mistakes in reaching the above misunderstanding, we cannot accept that those mistakes were reasonable. The first cause of ABX Air’s failure to surrender was its own brinkmanship. As the above chronology shows, ABX had been put on notice of its obligations as early as February 2021. Yet its email of 21 February 2022 reveals that no meaningful attention had been paid to them whatsoever. The subsequent EMP application was made only nine weeks before the surrender deadline. While that application ought to have been determined by the Environment Agency within two months, nothing in the Order or anywhere else suggests that failure to meet that deadline would also postpone the surrender deadline. Even had there been no LoA or other alternative procedure, as ABX Air appears to have thought, it could have had no reasonable expectation that the precedent steps to surrendering allowances under the ‘usual’ procedure could be completed in the time it had left itself, especially given that no allowances had been provided in its AOHA.

We are unable to read the EMP application determination extension correspondence (such as the letter of 19 April 2022) as giving any impression whatsoever that the surrender deadline would also be extended in line. On the contrary, the newsletters and the LoA correspondence had made it clear that the surrender deadline was immovable and that in the absence of an authorised representative the LoA Procedure was the only way to comply. It was reiterated in multiple pieces of correspondence from the Environment Agency that failure to comply with the surrender deadline would result in a penalty of £100 per allowance, and ABX Air would have known that it required 3,829 allowances, yet ABX Air’s attitude throughout its engagement with UK ETS can be described as careless at best.

During the hearing we questioned whether the introduction of a revised procedure for this first year of the UK ETS might bespeak an inability on the Environment Agency’s part to cope with its workload in the weeks preceding the deadline. The evidence instead paints a picture of considerable agility in the face of last minute applications by operators. The LoA procedure, including the ability to access an AOHA and surrender allowances before approval of the EMP, was lawful under the Order. We see no reason why an operator that followed its instructions would be prevented from complying with the surrender deadline, especially given the evidence of the proactive steps taken by the Environment Agency to secure compliance. In this case, it included an extension to the deadline for returning the LoA and a telephone call to ABX Air when it failed to engage.

Taking a step back, 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. For the reasons already given, in particular by the Court of Justice in Billerung, 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 within the meaning of A1P1, and this appeal must be dismissed.