CRC is dead… long live the SECR

Georgina Penfold blogger, commentator and well-known character in utilities management discusses the future of emissions reporting

In amongst the hype of the Clean Growth Strategy and the Draft Domestic Tariff Cap Bill, you would be forgiven for missing the fact that BEIS also put out five consultations that same day.

These include a Call for Evidence on reforming the Green Deal Framework, a consultation to stimulate waste heat recovery in the industrial sector, a review on building the energy efficiency market in the domestic sector and a Call for Evidence on cutting energy bills and carbon emissions in the wider public and higher education sectors.

However, the one I want to talk about today will be critical to how major energy users in the private sector manage and report on emissions arising from their operations.

Ever since government announced the closure of the Carbon Reduction Commitment scheme in 2019, we’ve been uncertain what would replace the reporting element of this legislation. I’m not alone in having speculated whether ESOS would simply be expanded to include the public sector and then become the primary emissions reporting mechanism.

I was wrong.

Maybe it’s because the early impact review of ESOS has showed organisations with over 10,000 staff spent on average 24 days on ESOS compliance – in effect, more than a full working month lost to report preparation – although more encouragingly 45% of participants surveyed thought the ESOS report represented good value for money.

Or is it because government is cautious right now of putting any eggs into a basket that was created through an EU Directive?

Maybe they just want to make life simple.

That would explain why the consultation on the proposed emissions reporting process for the Private Sector is encouragingly entitled Streamlined Energy and Carbon Reporting.

Emissions reporting for the private sector

Unfortunately, whilst the process may eventually become relatively simple, the consultation is not. I read, report on and respond to a lot of consultation documents, but this one took some getting my head around.

Essentially, companies will be required to include energy and emissions data with their annual reports to Companies House.

So far, so easy.

It’s practicalities of implementing the reporting mechanism that gets complicated.

For UK quoted companies

Companies listed on the UK Stock Exchange are already required to produce emissions reports. Government proposes to keep this in place, but to also require energy and emissions data to be provided alongside annual reports as discussed.

The annual report is proposed to include global (not just UK) energy consumption.

Companies will need to specify within the disclosures whether they are using a financial control, operational control, equity share or another approach to determine responsibility and if certain energy or emissions have been excluded from the reports, you will have to justify this.

There’s no getting away from handing in the whole homework assignment unless you’ve got a really good excuse up your sleeve!

The proposed scope covers Scope 1 and 2 emissions as mandatory (emissions from fuel consumption including transport fuels and indirect use of fuels e.g. through use of grid electricity), with voluntary reporting of Scope 3 emissions.

For un-quoted companies

For unquoted companies, some will have to report, some will not. This is where it starts to get tricky.

Should the compliance threshold be based on the size of the company, or a company’s energy consumption? If we go on size, what constitutes a “large” company? Do we go with the meaning of large, as defined by the Companies Act, i.e.:

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

Or do we take the definition from the ESOS:

  • An average of 250 or more employees in a certain 12-month period or
  • Annual turnover greater than €50m and
  • Annual balance sheet total in excess of €43m.

I guess the strength of the sterling might make a difference to opinions on that one! Should we include companies which do not satisfy the specified employee or financial thresholds themselves but are part of a group that includes a ‘large’ undertaking – e.g. a parent company, sister company or subsidiary?

Maybe it’s just easier to stick with the existing CRC qualification process – all companies using over 6GWh electricity per year need to comply. Period. As the Americans would say.

Opinions on this probably vary according to company size and energy use, so do send your thoughts back to BEIS. We are available to help – more details on that later.

So what happens after the data is submitted?

BEIS don’t want this to be just about transparency. They want companies to take action. Along with The Planet Mark participants, I wholeheartedly support this ambition.

Again, BEIS are seeking views on how this is best achieved, for example there is a proposal that the annual report should include detail on the scale of opportunity and what has actually been done to improve energy efficiency.

Is this really enough? Should punitive measures be introduced as well?

Or is it best left to the market – when energy becomes expensive enough, businesses will take action.

The proposed SECR will bring energy reporting firmly into the realms of financial and corporate compliance. This may cause internal issues regarding allocation of workload and responsibilities, but all energy managers love to know that their Chief Finance Officer is engaged with the concept of energy efficiency. This could help give energy teams the internal visibility they need to drive forward improvements.

Whatever you think, all views and opinions are welcomed by government so get them sent in!

To help The Planet Mark participants craft a response to government, we are considering running either a workshop or conference call to go through the consultation in more detail. Please email: info@planetfirst.co.uk to let us know whether this would interest you – and please feel free to involve your finance and legal teams.

Any offers to provide a room to host this in are also gratefully received. It’s a cheeky request, but we can at least provide sparkling conversation on energy policy and reporting in return. The consultation closes on 4th January. More details can be found via this link.

About the author:

Georgina Penfold is one of the best-known and most-trusted voices in utilities management today. As a regular blogger, commentator and well-known personality in the sector, George is a skilled presenter, noted for her ability to explain difficult topics in an engaging, accessible way. With a background in energy management, George now specialises in practical advice to help consumers and suppliers respond to policy and regulatory changes by creating, curating and communicating business strategies that reduce consumption, carbon and cost. She has a strong interest in smart power and enabling technologies and a proven track record in assisting major energy consumers to understand and respond to government consultations.

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