ESOS Phase 3 – how will the changes affect you?
We take a look at ESOS Phase 3 and its new regulations.
In the current energy landscape, Phase 3 of the Energy Savings Opportunity Scheme (‘ESOS’) may not be an immediate priority for your business. But while the Phase 3 deadline is not until December 2023, it is still in every business’s best interest to comply as soon as possible.
In addition, the UK government recently released the outcome of its ESOS consultation. The aim of the consultation was to raise the quality of ESOS audits, and ensure that they are consistent with net zero commitments.
In light of this, we decided to take a look at the changes to the compliance regime, and why it pays to get ahead of schedule.
The consultation focused on four core options: improving the quality of ESOS audits by strengthening minimum standards and making ESOS more standardised, looking at the role of lead assessors, how ESOS can address the net zero challenge, and public disclosure of ESOS data to encourage uptake of ESOS recommendations.
Read on to find out more…
What are the changes?
- There will be a standardised template for participants to include summary information, such as organisational structure, energy consumption and outlining the route to compliance.
- The de minimus is now 5% of total energy consumption (previously it was 10%). The de minimus is the percentage amount of your total energy consumption that can be excluded from your reporting. This is likely to bring more activities within the scope of reporting, which could lead to more energy savings.
- Clearer guidance on the requirements around site sampling, including clearer guidance on recommended minimum sampling levels for both number of sites sampled and percentage of total energy consumption sampled.
- Collection of additional data for compliance monitoring and enforcement.
- The addition of an overall energy intensity metric within the overview section of the report – kWh/m2 for buildings, kWh/unit out for industry and kWh/miles for transport. This also complements existing requirements under SECR and would facilitate comparison between performance in different phases.
- Requirement to share ESOS reports with subsidiaries.
- ESOS reports will need to provide more information on the next steps for implementing recommendations.
- Targets or action plans must be set following the Phase 3 compliance deadline – and they will be required to report against these in Phase 4.
- There will be an increased penalty for non-compliance – an initial penalty of up to £50k and an additional £500 per day until the company complies.
- From Phase 4 onwards the ESOS balance sheet and turnover thresholds will align with SECR (250 employees, or a balance sheet of £18 million or a turnover of £36 million)
The Environment Agency will also be working with ESOS professional bodies, to identify how further changes could be made to improve the quality of ESOS audits in Phase 3. This is likely to be through active monitoring of lead assessors’ work.
What does this mean for you?
While there are several changes to the compliance requirements, it is unlikely that this will require revisiting site audits that already meet the current ESOS requirements. However, businesses will be required to audit additional sites, in light of the changes to the de minimis.
Participants may also need to implement a net zero element to their audits and the government response to the consultation is that they will develop a methodology for a net zero ESOS assessment. The Department for Business, Energy and Industrial Strategy (BEIS) is currently working with the British Standards Institute (BSI) on the production of a new net zero audit standard, to facilitate this.
Participants can also implement other Phase 4 changes on a voluntary basis, in Phase 3.
What can you do to prepare?
During Phase 1, more than 40% of businesses were still not compliant, four months after the deadline. If this were to happen again, in excess of 2,800 firms would be fined – and suppliers would be forced to raise their prices again. So, it is essential that businesses that wish to comply do so as soon as possible.
The first step towards assessing your carbon footprint is to carry out an energy audit. Energy audits assess a business’s total consumption – spanning buildings, industrial processes and transport usage. You can pinpoint areas of high energy usage, and your business could make significant energy savings as a result.
We recommend that you:
- Review your business structure and understand any anticipated changes.
- Review your portfolio and ensure that you have a clear view of all UK responsibilities, including sites where you are a tenant, or where you have operational control.
- Choose your ESOS compliance representatives – as a minimum, this must include a primary contact and a Company Director for sign-off.
If you have any questions about your compliance, please contact your dedicated team or alternatively contact firstname.lastname@example.org and a member of the Carbon team will get back to you.
Where does EIC come in?
Our carbon team has extensive experience with complex compliance legislation and we are dedicated to helping you reach deadlines, efficiently and effectively. Our Lead Assessors and highly trained Auditors are on hand to assist you throughout your compliance process.
We have assisted hundreds of clients with their ESOS journey, identifying 4.65 million tonnes worth of CO2 savings. As a result, our clients have avoided approximately £80 million in fines during phases 1 and 2.
You are busy balancing other tasks and responsibilities, and we know that compliance schemes such as ESOS can seem like a hassle. Here at EIC, we can help turn that obligation into an opportunity for you.
Get in touch to find out how we can help you start your compliance journey.
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