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.

If you’d like to know more about the Streamlined Energy and Carbon Reporting scheme take a look at my previous blog 7 facts about SECR. Alternatively, you can download our SECR factsheet here.

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 by downloading our SECR factsheet here https://hubs.ly/H0h2jWT0

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, and how EIC can support you with compliance contact us on 01527 511 757 or email SECR@eic.co.uk.

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.

With just 15 months until the next ESOS deadline, we’re urging you to make a start with compliance. To find out more about how we can help you comply, call us on 01527 511 757, email esos@eic.co.uk, or visit our website.

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.