The end of CRC

The final reporting period for the Carbon Reduction Commitment Scheme (CRC) concluded in March this year. Qualifying companies now only have to manage the final elements of the scheme: ensuring they have purchased and surrendered sufficient allowances to finalise Phase 2 reporting.

The CRC scheme ran for eight years, from April 2010 to March 2019. It covered approximately 10% of the UK’s carbon emissions, and raised roughly £790 million annually for the exchequer.

Qualifying businesses

Qualification criteria for CRC Phase 2 was determined as organisations with at least one half-hourly meter using 6,000 megawatt hours or more of qualifying electricity. This was a simpler method of working out relevant organisations and was implemented following Phase 1 feedback that the system was too complex. The seemingly sensible criteria did a good job of identifying significant energy consumers with a test that was simple.

An issue arose however with qualification being considered only in the period April 2012 to March 2013, and then lasting for all subsequent years in the phase. As time went on, there was an increase in companies who qualified, but had subsequently sold off the (usually industrial) sites that made them qualify for the scheme. This left comparatively low energy users stuck in a scheme for which they were no longer suitable. The qualification criteria became less effective over time. We learnt that rolling qualification criteria for schemes helps to avoid this problem and keep qualifying members relevant.

The impact of ‘greening the grid’

The CRC scheme also changed significantly due to the “greening of the grid”. The government’s electricity conversion factors, which denote the amount of carbon dioxide equivalent emissions associated with consuming a fixed amount of electricity, fell approximately 15% year on year over the last three years of the scheme.

This meant that in three years the number of allowances required to cover a fixed amount of electricity, halved. Some members of the scheme were caught out by this, and held a large number of prepaid allowances which were no longer needed due to the drop in conversion factors that was not forecast. This also had a big impact on the total tax revenue generated by CRC, and if the scheme were to continue, we would expect this to be addressed in a review. We learnt that if part of a carbon scheme’s purpose is to raise tax, then there are factors that can unexpectedly influence this.

The future of compliance

Now the CRC scheme is closed, we see a new future opening for carbon compliance. The tax-raising component of CRC has been incorporated into the Climate Change Levy as an increased flat rate across business energy bills in the UK for firms who pay 20% VAT. This is charged per kWh of energy, and so tax revenues are easier to forecast and less likely to change. However, this has shifted the tax burden initially placed on high emitters to being evenly spread across a wider group of energy bills.

The reporting side of CRC has been followed by the new Streamlined Energy and Carbon Reporting (SECR) scheme. This has a larger footprint of approximately 11,000 qualifying firms, and the new qualifying criteria is attached to accounting standards which is both simple and applicable year on year. We welcome the increased attention on emissions that will be generated by the SECR scheme.

Talk to the EIC team

EIC can offer a full review of your organisation to assess your legal obligations and compliance status. We offer ESOS, SECR, Air Conditioning Inspections, Display Energy Certificates and much more, see our full suite of services here. We’ll provide you with a Compliance Report that will summarise our findings, explain the legislation, and outline your next steps.

Our in-house team includes qualified ESOS Lead Assessors and ISO 50001 Lead Auditors, as well as members of the Chartered Institution of Building Service Engineers (CIBSE), the Register of Professional Energy Consultants (RPEC), and the Energy Institute. Call us on 01527 511 757 or contact us here.

Net Zero UK

The action will require the UK to reduce net greenhouse gas emissions to nothing over the next 30 years. This is a more ambitious target than the previous, which was at least an 80% reduction from 1990 levels.

The decision follows the Net Zero report, by the Committee on Climate Change (CCC), which was commissioned by the government to reassess the UK’s long-term emissions targets. The report recommended the 2050 net zero target for the UK, while issuing a 2045 target for Scotland and a 95% reduction in greenhouse gases by 2050 for Wales.

Representatives of the Scottish and Welsh governments have already announced intentions for the nations to aim for these targets, with the Welsh government aiming to go further than the CCC advice; targeting net zero emissions no later than 2050.

Is this achievable?

The report by the Committee on Climate Change states that the net zero target is possible with known technologies, alongside behavioral and societal changes in people’s lives. The organisation has forecast that that the target is also within the expected economic cost that Parliament accepted when legislating the previous 2050 target under the Paris Agreement.

The report does come with the caveat that net zero is only possible if clear, sensible and well-designed policies to enable reductions in emissions are introduced across the country in a strict timeline. The CCC highlights that current policy would not meet even the previous target.

STAY INFORMED WITH EIC INSIGHTS

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our webpage to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

Updates to the SECR Scheme

The Streamlined Energy and Carbon Reporting Scheme (SECR) came into force at the start of this month. Quoted companies and large unquoted companies and LLPs are affected, and will now be required to make a public disclosure within their Directors’ Annual Report of their UK energy use and carbon emissions.

Over the last few months the ETG (Emissions Trading Group) have been consulting with various parties and collating feedback and queries regarding the guidance for the scheme. As a result, a number of minor updates have been made to the SECR section (Chapter 2) of the Environmental Reporting Guidance.

 

A guide to the updates

All of the updates can be found in Chapter 2 of the Environmental Reporting Guidance.

Below is a summary of the changes:

  • Page 14, 20, 36 – hyperlinks for ISO 14001, BS 8555, ISO 14064-3 and ISO 14064-1 have been updated.
  • Page 26 – reference to public sector has been expanded (first paragraph and footnote 22) and also for charitable organisations (second bullet point).
  • Page 26 – new paragraph inserted to ensure that guidance is not seen as a substitute for the SECR Regulations.
  • Page 30 – reference to corporate group legislation has been expanded (sections 1158 to 1162 of Companies Act 2006) in the last paragraph of section 2.
  • Page 33 and 39 – amended reference to NF3 to reflect that it is not currently listed as a direct GHG in section 92 of the Climate Change Act.
  • Page 45 – footnote 39 referencing Government consultation published on 11 March 2019 on the recommendations made by the Independent Review of the Financial Reporting Council.
  • Pages 50-56 – changes to reporting templates to recommend grid-average emission factor is included as the default by those organisations that choose not to dual report.


Our view on the changes

These updates provide useful clarification on outstanding queries raised by EIC such as dual reporting of electricity. Dual reporting remains voluntary but doing so allows companies to demonstrate responsible procurement decisions. For example, those selecting to procure electricity from renewable sources with a lower emissions factor can demonstrate this within their energy and carbon report if they choose to dual report.

EIC work closely with the ETG and BEIS to help the group reach key decisions regarding carbon compliance scheme development and implementation, including SECR, and will continue to do so. As a result we are able to ensure all of our customers receive the most up-to-date information and we are always on hand to support with SECR compliant reporting.

Click here to learn more about the Streamlined Energy and Carbon Reporting scheme.

7 things you need to know about SECR

    1. SECR stands for Streamlined Energy and Carbon Reporting, a new UK Carbon Reporting framework. Companies in scope of the legislation will need to include their energy use and carbon emissions in their Directors’ Report as part of their annual filing obligations.

 

    1. It starts on 1 April 2019 and companies will need to report annually, reporting deadlines align with the company’s financial reporting year.

 

    1. The scheme affects UK quoted companies and ‘large’ unquoted companies and LLPs, defined as those meeting at least two of the following; 250 employees or more, annual turnover of £36m or more or an annual balance sheet of £18m or more.

 

    1. It will affect over 11,000 firms from high street retailers to manufacturers.

 

    1. SECR requires companies to report the following: their Scope 1 (direct) and Scope 2 (indirect) energy and carbon emissions (electricity, gas and transport as a minimum). Previous year’s figures for energy and carbon. At least one intensity ratio (e.g. tCO2/turnover). Detail of energy efficiency action taken within the reporting year. Reporting methodology applied.

 

    1. Not meeting the reporting requirements can result in accounts not being signed off and missing the filing deadline could lead to a civil penalty. So it’s important for organisations to fully align communications between their energy and finance teams and to get a head start where possible!

 

  1. There is an overlap with other reporting and compliance schemes such as ESOS so savvy businesses can save time and hassle by using data collection from one to support compliance with another.

Find out more at our Streamlined Energy and Carbon Reporting (SECR) service page.

An insight into SECR

SECR will require all quoted companies, large UK incorporated unquoted companies, and limited liability partnerships (LLPs) to report their energy use and carbon emissions relating to gas, electricity, and transport, and apply an intensity metric, through their annual Directors’ reports.

 

Summary of the Government’s proposed SECR framework

From April next year, large organisations in the UK will need to comply with the SECR regulations. The new scheme is part of the Government’s reform package.

Its aim is to reduce some of the administrative burden of overlapping carbon schemes and improve visibility of energy and carbon emissions. As such, it will be introduced to coincide with the end of the current Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

SECR will build on the existing mandatory reporting of greenhouse gas emissions by UK quoted companies and the Energy Savings Opportunity Scheme (ESOS).

 

Who needs to comply with SECR?

SECR qualification will follow the Companies Act 2006 definition of a ‘large organisation’, where two or more of the following criteria apply to a company within a financial year:

  • More than 250 employees.
  • Annual turnover greater than £36m.
  • Annual balance sheet total greater than £18m.

There is no exemption for involvement for energy used in other schemes – e.g. Climate Change Agreements (CCAs) or EU Emissions Trading Scheme (ETS).

 

What are the reporting requirements?

From 1 April 2019, affected organisations will be required to:

  • Make a public disclosure within their annual directors’ report of energy use and carbon emissions.
  • Report using a relative intensity metric e.g. tCO2/number of employees.
  • Provide a narrative on energy efficiency actions taken during the reporting period.

Reporting will align with an organisation’s financial reporting year.

 

Is anyone exempt from SECR?

Yes – those exempt from complying with SECR include:

  • Public sector organisations.
  • Organisations consuming less than 40,000kWh in the 12-month period are not required to disclose SECR information.
  • Unquoted companies where it would not be practical to obtain some or all of the SECR information.
  • Disclosure of information which Directors think would be seriously prejudicial to interests of the company.

 

There seem to be similarities to ESOS – can ESOS compliance help with SECR?

Yes. Though ESOS and SECR are separate schemes, and will continue as such, the information from your ESOS compliance can be used to support SECR reporting.

 

Where do I start with compliance?

The detailed guidance for SECR will soon be published. EIC can assist with compliance as well as providing bespoke reporting to ensure that you have real visibility of your energy and carbon emissions both at organisational and site level.

If you would like to know more about SECR, what it means for your business visit our Streamlined Energy and Carbon Reporting (SECR) service page.

What impact will Brexit have on UK climate change targets?

The energy sector in the UK had already seen significant changes with the Energy Act 2011 and various proposals for reform of the electricity market. The potential impacts of Brexit on the UK and global economy could be far-reaching. However, the direct impact on the energy industry is likely to be more muted.

 

How will Brexit impact on the carbon market and the EU ETS?

The Government has published plans for the implementation of a UK carbon tax in the case of a ‘no-deal’ Brexit.

Under a ‘no-deal’ scenario, the UK would be excluded from participating in the EU Emissions Trading Scheme (ETS). This would mean current participants in the EU ETS who are UK operators of installations will no longer take part in the system.

In this instance, the UK Government will initially meet its existing carbon pricing commitments through the tax system. A carbon price would be applied across the UK, with the inclusion of Northern Ireland, starting at £16/tCO2, marginally less than the current EU ETS price, maintaining the level of carbon pricing across the UK economy post-Brexit.

The tax would be applied to the industrial installations and power plants currently participating in the EU ETS from 1 April 2019.

The House of Commons Business, Energy and Industrial Strategy (BEIS) Committee has strongly recommended remaining in the EU ETS at least until the end of Phase III in 2020.

The UK’s 5th carbon budget, adopted in 2016, assumes continued participation in the EU ETS, and will need to be altered if the UK leaves the EU ETS.

 

Will Brexit affect the UK’s climate change targets?

The UK’s climate change targets are expected to continue unaffected by whatever Brexit deal is reached. The Climate Change Act 2008 established that such goals are undertaken on a national level.

However, there are several international issues in this area which will need to be settled. The UK’s emissions reduction target forms part of the EU target under the Paris Agreement and this will need to be withdrawn. The UK would also need to submit its own Nationally Determined Contribution under the United Nations Framework Convention on Climate Change (UNFCCC) processes.

 

What about renewable energy?

After Brexit, the UK will no longer be obligated by renewable energy targets as part of the EU Renewable Energy Directive. Additional freedom from State Aid restrictions has the potential to allow the Government to shape renewable energy support schemes.

The development of large-scale projects may be impacted by the availability of funding from EU institutions such as the European Investment Bank (EIB). However, renewable and low-carbon energy will remain a focal point of UK energy policy post-Brexit, with national and international decarbonisation obligations unaffected by their relationship with the EU.

As part of the European Union (Withdrawal) Act 2018, EU legislation will be initially transposed into UK law from 29 March 2019. For some elements of the EU law, the UK will need to reach an agreement with the EU in order to maintain the status quo.

 

Stay informed with EIC insights

For the latest news on the energy markets and industry updates, you can find us on Twitter.

Follow @EICinsights today.

Autumn Budget light on energy

During the Chancellor’s hour-long speech the overall focus was on tax and spending, with little said about climate change. What energy-related announcements were made?

 

Climate Change Levy

CCL is a tax on energy delivered to non-domestic users within the UK. Businesses participating in Climate Change Agreements (CCAs) can avoid up to 90% of this levy by investing in agreed energy efficiency and emissions reduction measures.

This latest Budget announced upcoming changes to CCL rates. The Government’s ongoing efforts to rebalance the main rates paid for corporate gas and electricity use will see the two prices brought more in line with each other.

The electricity rate will be lowered in 2020-21 and 2021-22, whilst the gas rate will be increased in 2020-21 and 2021-22 so that it reaches 60% of the electricity main rate by 2021-22. Other fuels, such as coal, will continue to be aligned with the gas rate.

 

The impact to your energy bills

The increase in revenue for the Treasury will come as a direct result of higher energy bills for businesses. An increase in the CCL for 2019 was already expected as a result of the closure of the Carbon Reduction Commitment (CRC).

 

Carbon Price

Carbon Price Support (CPS) is applied to the power sector in the UK, with the exclusion of Northern Ireland, and has been a key driver in the reduction of coal usage in the UK fuel mix.

The Government has decided to maintain the UK’s carbon tax at £18 per tonne of CO2, until April 2021. However, the budget provides plans for the Government to reduce the CPS from 2021-22 if the total carbon price remains elevated.

In addition to this, the Government has published plans for the implementation of a UK carbon tax in the case of a ‘no-deal’ Brexit. Under a ‘no-deal’ scenario, the UK would be excluded from participating in the scheme. This would mean current participants in the EU ETS who are UK operators of installations will no longer take part in the system.

In this instance, the Government will initially meet its existing carbon pricing commitments through the tax system. A carbon price would be applied across the UK, with the inclusion of Northern Ireland, starting at £16 per tonne of CO2, marginally less than the current EU ETS price, maintaining the level of carbon pricing across the UK economy post-Brexit. The tax would be applied to the industrial installations and power plants currently participating in the EU ETS from 1 April 2019.

 

A freeze on fuel duty

Already announced ahead of the Budget, the Government has promised that fuel duty will be frozen for the ninth year in a row. This will see the tax on fuel, currently 57.95p per litre of petrol, diesel, biodiesel, and bioethanol, remain fixed over the winter period.

 

Enhanced Capital Allowances

The Budget also included changes to Enhanced Capital Allowances (ECAs), which are designed to encourage UK businesses to invest in high-performance energy efficiency equipment. The Government plans to end ECAs and First Year Tax Credits for technologies on the Energy Technology List and Water Technology List, from April 2020. The Government believe these ECAs add unnecessary complexity to the tax system and that there are more effective ways to support energy efficiency.

There is no new funding in place yet, but savings will be reinvested in an Industrial Energy Transformation Fund, to support significant energy users to cut their energy bills and help transition UK industry to a low carbon future.

The Government will extend ECAs for companies investing in electric vehicle charge points to 31 March 2023. This is part of the Government’s ambition for the UK to become a world-leader in the ultra-low emission vehicle market.

 

What about renewable energy?

Despite the recent landmark ‘1.5C report’ from the Intergovernmental Panel on Climate Change (IPCC), the Budget was very light on details concerning climate change and the environment. There were no announcements within the Budget to encourage new investment in renewable energy in the UK, despite industry calls to support new onshore wind and solar.

Leading renewable developers have previously urged the Government to clear a path for subsidy-free onshore wind farms, allowing developers to compete for clean energy contracts. Cost projections, published by the Department for Business, Energy and Industrial Strategy (BEIS), show that onshore wind is currently the cheapest power source available.

 

Stay informed with EIC

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter. Follow @EICinsights today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

How ESOS can help you get ahead with SECR

You probably know all about ESOS, and you may feel that even now, with 15 months until the next deadline, there’s still no rush to get started with Phase 2. We disagree. Rather than put off compliance until the bitter end, we recommend getting ahead of the curve to avoid any bottleneck in resources later on.

The ESOS Phase 2 compliance deadline is 5 December 2019, however, the qualification date is 31 December this year. This means that if you know your business will fit the criteria, you can start some compliance activities now.

ESOS applies to large organisations, classified as those with:

  • More than 250 employees or;
  • A turnover of more than €50,000,000 and an annual balance sheet total of more than €43,000,000 or;
  • Part of a corporate group containing a large enterprise.

 

It’s time to get started

In their latest ESOS newsletter, the Environment Agency (EA) emphasised that businesses can start audit work now. They state that although you won’t be able to complete the assessment of your Total Energy Consumption (TEC), as this has to include the qualification date, if you expect to qualify for Phase 2 – and you know that an energy supply will be included in your Significant Energy Consumption (SEC) – you can do the audit work on this supply.

This audit will need to have at least one-year’s energy measurement, but this can be from anytime between 6 December 2015 and 5 December 2019. The audit can use data that has been collected at any time during this period provided that it is carried out no later than 24 months after the data period (and the data has not already been used for an audit in Phase 1).

 

SECR is coming – ESOS can help get you ready

Streamlined Energy and Carbon Reporting (SECR) aims to further incentivise the improvement of energy efficiency and reduction of carbon emissions. It’s also hoped that SECR will reduce some of the administrative burden of overlapping carbon schemes. As such, it’ll be introduced from April 2019 to coincide with the end of the current CRC Energy Efficiency Scheme.

Taking action with ESOS compliance will help you get a head start with preparing for SECR compliance. Though ESOS and SECR are separate schemes, and will continue as such, you can use information from your ESOS compliance to support energy and emissions reporting and narrative on energy efficiency action taken in your annual reports.

 

Make EIC your trusted compliance partner

Whether it’s ESOS, SECR, or CCA, EIC will work with you to reach compliance deadlines and targets. In Phase 1 of ESOS we identified a total of 527GWh worth of energy savings for our clients, equivalent to £49,000,000 in cost savings.

Reduce your CRC costs through the secondary market

The cost associated with CRC reporting will be replaced from 1 April 2019 with an increase in the Climate Change Levy (CCL), whilst the reporting element of the scheme is to be replaced with Streamlined Energy and Carbon Reporting (SECR).

Participants are required to order, pay, and surrender allowances each compliance year in order to comply with the CRC scheme. There is no further opportunity to purchase forecast allowances at a lower cost, and July 2019 will be the last time ‘Buy to Comply’ allowances will need to be purchased to meet CRC obligations. One allowance equates to one tonne of CO2 reportable, and allowances purchased in the ‘Buy to Comply’ sale will cost more than those sold in the forecast sale at around £1.10 additional cost per allowance.

Allowances can be purchased in government sales of allowances or, where available, through the secondary market.

 
 

What is the secondary market?

CRC allows the trading of allowances through buying or selling to another CRC account holder on the registry. This does not impact the ‘Buy to Comply’ allowance process and doesn’t have set deadlines for purchasing or selling allowances.

The appetite for trading on the secondary market is dependent on the use by other participants and there is no guarantee that buying and selling of allowances will occur when using the notice board.

 
 

Why use the secondary market?

The decrease in fossil fuel use for electricity generation and increase in renewable electricity production has had a positive impact on the emission factor. This has been a favourable outcome for most CRC participants, reducing their emissions and allowance obligations for electricity in CRC reporting.

Organisations that have utilised the lower cost forecast purchase option for CRC reporting have been caught out by the decrease in electricity emission factors for 2017/18 reporting by over forecasting allowances required. This has left some organisations with surplus allowances.

The cost to comply in the 2018/19 Buy to Comply sale has been set at £18.30 per tonne of CO2 reportable.

Purchasing on the CRC secondary market could save your organisation on average approximately £2.18 per tonne of CO2.

 
 

How can EIC help?

EIC can manage the transfer process for you from start to finish*, whether you have surplus allowances to sell or are looking to buy on the secondary market to reduce the cost of complying for the final year of CRC reporting.

The process is simple and if you would like to find out more our dedicated Carbon team is on hand to guide you. You can contact our team on 01527 511 757 or email info@eic.co.uk.

*EIC will not process payment of allowances on behalf of an organisation. Payments for allowances bought or sold on the secondary market are to be made off system between the participants involved. Any additional administration or transaction fees associated with the transfer will need to be pre agreed between the two organisations.