Why change things?
Currently the Government has a number of policies in place which have the objective of encouraging organisations to understand their carbon footprint and invest to reduce their carbon emissions, but the policy landscape has become crowded and confused.
The current policies include the Carbon Reduction Commitment Energy Efficiency Scheme, the Energy Savings Opportunity Scheme (ESOS), the Climate Change Levy (CCL), and Mandatory Greenhouse Gas (MGHG) Reporting amongst others. This collection of policies demand duplicated effort in reporting, more than one tax burden, and complex compliance requirements.
There’s been a lot of discussion about what a SECR (Streamlined Energy and Carbon Reporting) framework will mean following consultations and impact assessment, so this article sets out some facts from the Government response to these so far.
What is the aim of SECR?
The Government intends that SECR will continue to encourage participants to invest in energy efficiency leading to a reduction in energy consumption and the associated emissions; that this would be achieved through organisation behaviour change driven by the financial and reputation impact of doing nothing. But the main aim of SECR is to reduce the administrative burden on organisations which participate, providing clarity on what organisational emissions are, and what the total tax burden of these is.
Who will SECR affect?
The SECR will apply throughout the UK, just as ESOS and MGHG do, and it will take the place of the majority of the policy instruments discussed above. The qualification criteria for SECR participants is adopted from the Companies Act 2006 which states at least 250 employees or annual turnover greater than £36m and an annual balance sheet total greater than £18m. This differs slightly from ESOS, so whilst SECR will involve the participants from the current Regulations, there will also be a number of additional companies involved due to the legal definition chosen. The Government has also decided that large Limited Liability Partnerships (LLPs) will also qualify for SECR as they should do for ESOS and CRC EES. However, there will be a de minimis threshold set at 40,000 kWh to save those companies with low energy consumption from having to report it.
Where does the tax element of CRC go?
The tax element of the CRC EES will be achieved by increasing the Climate Change Levy, with a rebalancing of the rates between electricity and gas over time so that the ratio of cost per kWh becomes the same for each by the year 2025.
What will SECR Participants need to do
From the beginning of April 2019 SECR participants will be required report their UK energy use and associated scope 1 and 2 emissions with an intensity metric. Energy use is to include electricity, gas and transport energy. Reporting scope 3 emissions will be optional.
Participants will also have to provide a commentary on energy efficiency actions taken in the financial year, although there will be an exemption from disclosing information that the directors believe would be seriously prejudicial to the interests of the company.
What is happening with SECR?
In reality, the matter is still to be concluded following the consultations and impact assessment, so despite the chatter about this, there is nothing in law yet. However, the new SECR Regulations will take effect in 2019. The Order in Council to close the CRC EES UK-wide after the end of phase 2 has already been laid before Parliament, and the Regulations to implement SECR for financial years beginning on or after April 2019 have been laid before Parliament and are subject to parliamentary approval.
So how can we maximise the benefits from having to do this?
With fewer overlapping reporting activities and taxation budget lines, organisations should be able to better focus on what their emissions are and why.
The world is changing and many organisations that have previously sat on the side-lines are doing more than just reporting on carbon emissions, with many now making change and setting targets to reduce their emissions. Those that have already been more active are reviewing their approaches to get better value from what they do.
Faithful+Gould can help with advice on understanding and complying with all of the Regulations discussed. We have the expertise to support organisations in reducing emissions at a strategic portfolio level right down to plant and equipment level. From calculating and reporting emissions, to developing realistic strategies to make real change, and developing targets for improvements in performance.
Paul Taylor is an experienced specialist in greenhouse gas reporting, management, and strategy. He is also a qualified and experienced ESOS Lead Assessor, and has acted as an ESOS Auditor for the Environment Agency, the ESOS Administrator.