Environment | UK Regulatory Outlook November 2025

International Capital Market Association announces the release of new guidance on climate transition bonds 

On 6 November 2025, the Executive Committee of the Green, Social, Sustainability and Sustainability-Linked Bond Principles published a press release announcing new Climate Transition Guidelines alongside a new edition of the Climate Transition Handbook, with the help of the International Capital Market Association.  

The guidelines introduce the use of Climate Transition Bonds (CTB), which can be used to finance climate transition projects through utilising the proceeds of the bonds. These projects work to reduce greenhouse gas emissions in line with the goals set out in the Paris Agreement.  

The guidelines are intended to be used in conjunction with the handbook and set out four core components with which CTBs must align. These cover the use of proceeds, the process for the evaluation and selection of projects, the management of proceeds, and how project information should be reported.  

Government consultation on the draft Climate Change Agreements (Energy-intensive Installations and Eligible Facilities) (Amendment) Regulations 2026 

HM Revenue and Customs has published a consultation on the draft Climate Change Agreements (Energy-intensive Installations and Eligible Facilities) (Amendment) Regulations 2026. The regulations aim to bring three energy-intensive processes within scope of the climate change agreement (CCA). These are:  

• the mechanical recycling of plastic;
• the packaging of spirits; and
• the production of batteries for electric vehicles.  

CCAs are voluntary agreements which commit sector associations and their members, who operate energy-intensive installations and facilities, to increase their energy efficiency or reduce their carbon emissions. In return, they will receive a reduced rate of the climate change levy (CCL).  

From 1 January 2026 to 31 December 2030, sectors and operators will be required to enter into new CCAs with amended terms and new targets. Participants in the scheme will be eligible for reduced rates of CCL up to 31 March 2033.  

The consultation will close on 2 December 2025, with the government intending to bring the changes into force by January 2027.  

Government publishes consultation on proposals to accelerate the phasedown of HFCs 

The Department for Environment, Food and Rural Affairs (Defra) has published a consultation on proposals to accelerate the phasedown of hydrofluorocarbons (HFCs) in Great Britain. HFCs are an example of man-made fluorinated greenhouse gases (F-gases), which were introduced to replace chlorofluorocarbons (CFCs). While F-gases (unlike CFCs) do not damage the ozone layer, they are powerful greenhouse gases with a global warming effect that is substantially larger than that of carbon dioxide.  

The current proposals would accelerate the HFCs phasedown schedule to go further than the current target of cutting the amount coming onto the market by 79% by 2030. The aim is to achieve a phase-out of HFCs of 98.6% by 2048.  

Environment Agency publishes new guidance on decarbonisation readiness under the Environmental Permitting Regime 

The Environment Agency (EA) has published new guidance on decarbonisation readiness (DR) under the Environmental Permitting (EP) regime.  

From 28 February 2026, operators of new and substantially refurbished combustion plants will be required to introduce a DR report as part of the EP application in England under the Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations 2025 (SI 2025/154). Such plants are required to be built in a way that enables them to be decarbonised within their lifetime. This can either be by converting to hydrogen-firing or retrofit carbon capture technology. The regulations replace the requirements under the Carbon Capture Readiness (Electricity Generating Stations) Regulations 2013 (SI 2013/2969) in England.  

The new guidance outlines how DR reports should be prepared under an EP application. The guidance:  

• clarifies the scope, exemptions and definitions;
• reinforces its approach to proportionality and flexibility;
• adds clarification boxes on transitioning to DR; and
• gives further explanation on charging and how to update DR reports.  

The EA has also published a consultation on proposals to change standard rules permits under the EP regime to reflect the new DR requirements. This consultation closes on 18 December 2025.  

Government responds to consultation on changes to the network charging compensation scheme 

The Department for Business and Trade has published the government response to its consultation on increasing the network charging compensation (NCC) scheme in support of energy-intensive industries. The NCC scheme forms part of a package of measures called the British Industry Supercharger, which aims to reduce carbon leakage by energy-intensive industries (EIIs). The NCC scheme offers relief to EIIs that hold a valid certificate under the EII exemption scheme by compensating them for a portion of their network charging costs.  

The response to the consultation outlines that the government will:  

• increase the relief offered by the scheme from 60% to 90% from 1 April 2026; and
• extend the application window for the scheme from one month to two months from 30 June 2026.  

The response also suggests that the EII support levy will be increased from 1 April 2027 to cover the costs of the changes to the NCC scheme. Electricity suppliers will be given a six-month forecast of the increase in costs in October 2026. EIIs who submit a Q2 2026 claim will receive the uplifted compensation after April 2027.  

Government publishes response to Climate Change Committee 2025 adaptation progress report 

The Climate Change Committee (CCC) published its progress report in April 2025, assessing the extent to which the government's Third National Adaptation Programme (NAP3) and its implementation are preparing the UK for the impacts of climate change. Defra has now published the government's response to the report.  

The government provided responses to the priority recommendations in the report relating to the key sectors of (i) land, (ii) nature and food, (iii) infrastructure, (iv) the built environment and communities, (v) health and well-being, and (vi) the economy. It also highlighted the steps taken by the government to build resilience to climate change risk since 2024.  

The government responded to the CCC's recommended key areas of improvement to the NAP3 as follows:  

• It stated that it would publish a National Adaptation Programme Monitoring, Evaluation and Learning Framework, to inform and improve data collection and reporting. This will guide objective development and plans for implementation ahead of NAP4.
• It noted the work done on co-ordinating and integrating climate risk adaptation with wider resilience work, such as the Resilience Action Plan and the Chronic Risk Analysis.
• It cited the updated supplementary Green Book guidance which considers the effects of climate change as an example of adaptation being integrated.  

Government publishes updated Carbon Budget and Growth Delivery Plan 

The government has updated its Carbon Budget and Growth Delivery Plan as part of a package of documents relating to the UK's net zero transition and energy security. The High Court had previously found the Carbon Budget Delivery Plan to be inadequate in May 2024, ordering the government to publish a revised plan. The updated plan has been published in response to this decision.  

The government has stated that it "builds on our action to accelerate clean, homegrown energy for the British people". The emissions reduction targets set by the previous government have not changed under the updated plan.  

The government has published a summary of the actions it is taking on clean energy and climate action to accompany the plan. This covers energy security and lower electricity bills, jobs and economic growth, quality of life and health and protecting the natural environment.  

Supreme Court decision on nutrient neutrality and Habitats Regulations assessment requirements  

On 22 October 2025, the Supreme Court handed down its decision in C G Fry & Son Ltd v Secretary of State for Housing, Communities and Local Government [2025] UKSC 35. This decision reaffirms the protections afforded to sites protected under the Habitats Regulations 2017.  

The Supreme Court confirmed that the requirement to conduct an appropriate assessment could apply after the initial application for planning permission where sites are protected under the Habitat Regulations 2017. In doing so, the court highlighted "the protective purpose of the Habitats Regulations" and emphasised the importance of this.  

The case has wider implications from a planning perspective, with the court setting out that a Local Planning Authority (LPA) is bound by specified planning conditions once an outline planning permission has been granted subject to those conditions. In making this decision, it confirmed that Ramsar sites are not protected by the Habitats Regulations as a matter of law. This may change if the current Planning and Infrastructure Bill before Parliament is implemented, which has just undergone its third reading in the House of Lords.  

The Department for Energy Security and Net Zero publishes independent review of greenhouse gas removals 

The Department for Energy Security and Net Zero has published its independent review of greenhouse gas removals (GGRs). The increased use of GGRs is believed to help the UK meet its carbon budget and net zero targets under the Climate Change Act 2008. 

The review offers five recommendations for the government to implement to facilitate GGR mechanisms in the UK, with options for GGR mechanisms including large-scale bio-energy with carbon capture and storage (BECCS) and direct air carbon capture and storage. These recommendations include:  

• Developing a GGR strategy, identifying how GGR solutions can be used to help the UK meet its carbon budget and net zero targets. This strategy should outline the role for BECCS within this strategy, alongside a plan for maximising GGRs based on underutilised resources in the UK.
• Minimising the UK's use of imported biomass feedstock, identifying ways in which UK sustainable feedstocks can be used as a basis for GGRs.
• Renaming the sustainable aviation fuel mandate to the net zero aviation mandate. This mandate should be amended to ensure that all flights departing from the UK are climate neutral by 2045.  

The review recommends that the UK should establish itself as an international leader on GGRs.  

Welsh government plans to reform management of the water sector and Natural Resources Wales publishes consultation on water management in Wales 

The deputy first minister for Wales, Huw Irranca-Davies, has announced the Welsh government's plans to reform the management of the water sector in response to the Independent Water Commission's final report.  

The plans include the introduction of a new regulator for water in Wales. It also seeks powers that would allow Wales to legislate independently for the water industry. The Welsh government's aim is to progress regulation of the water sector "towards an ethical, collaborative framework built on sustainability, affordability and fairness". This will include introducing stronger environmental regulation, support for independent customer advocacy and exploration of an ombudsman for water in Wales, alongside economic regulations. There will be a consultation on the reforms later this year.  

Also relevant to the Welsh water sector, Natural Resources Wales published a consultation on managing water quality in Wales using river basin management plans. This includes considering problems of flooding, pollution, invasive non-native species, nutrients, and the climate and nature emergencies. The consultation will close on 21 April 2026.  

Government publishes consultation on strengthening civil sanctions for specified environmental offences by water companies 

Defra has published a consultation on new penalties for water companies that commit environmental offences in England. The consultation seeks views on proposals which would allow the Environment Agency to impose variable monetary penalties (VMPs) on the basis of the civil standard of proof ("on the balance of probabilities") rather than the criminal standard ("beyond reasonable doubt") for certain moderate offences, essentially lowering the threshold for such penalty enforcement.  

The revised standard would apply to offences under the regimes for environmental permitting, water abstraction, water impounding and drought. The proposals suggest that the maximum value of VMPs that could be imposed under the lower civil standard of proof would be £350,000 or £500,000.  

Defra is also seeking views on requiring the EA to impose automatic fixed monetary penalties to the civil standard of proof for specific minor environmental offences. These would apply to specific environmental permitting or abstraction breaches, including a failure to report a significant pollution incident without four hours, breach of certain data requirements and using an emergency overflow more than three times a year. The consultation is seeking views on what the maximum level of the new automatic penalty should be.  

The proposals under this consultation will require parliamentary approval of secondary legislation. The consultation will close on 3 December 2025.  

Increased flexibilities for manufacturers in vehicle emissions trading schemes 

The Vehicle Emissions Trading Schemes (Amendment) (No 2) Order 2025 (SI 2025/1101) (VETS No 2 Order 2025) comes into force on 1 January 2026, amending the Vehicle Emissions Trading Schemes Order 2023 (SI 2023/1394) (VETS Order 2023). The VETS Order 2023 set up four separate vehicle emission trading schemes, providing a route for phasing out new purely internal combustion engine vehicles, as all new cars and vans are to be fully zero emission by 2035.  

The VETS No 2 Order implements the following amendments:  

• Providing manufacturers with additional routes to compliance, and allowing them greater flexibility to bank and borrow allowances and to convert over-compliance within one trading scheme to support them in complying with another.
• Reducing the compliance payments payable where manufacturers fail to meet targets.
• Implementing technical changes to assist manufacturers with treatment of plug-in hybrid vehicles.  

The amendments are supported by guidance published by the Department for Transport, as well as an explanatory memorandum and policy note.  

Government publishes a response to its consultation on Marine Recovery Fund for offshore wind developments 

Defra has published the government response to its consultation on how the Marine Recovery Fund (MRF) will function in England, Wales and Northern Ireland. The MRF aims to speed up the consenting process for offshore wind developments on Marine Protected Areas by introducing industry-funded measures to compensate for the adverse effects of such developments.  

The response suggests that Defra: 

• will streamline the application process and issue guidance on how MRF delivers compensatory measures using a library of strategic compensatory measures; and
• is working with the Scottish Government to ensure that Defra's MRF is aligned with the Scottish MRF. 

The UK government will now draft the secondary legislation required to publish the MRF, while Defra will publish the accompanying guidance.