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Carbon & energy compliance in the UK: everything you need to know

The carbon compliance landscape has undergone significant changes in recent years, extending mandatory requirements to more companies, and increasing the uptake of voluntary schemes.

A key driver is the UK’s legally-binding commitment to reach net zero emissions by 2050, but competition, investor and consumer pressure are also major factors behind the shift.

Here we offer a handy 101 on the carbon and energy compliance schemes currently running in the UK.

A note on the term “carbon”: carbon dioxide is just one of a group of greenhouse gases causing global warming. It’s the one most commonly produced from human activities, so many people use “carbon” as shorthand to refer to all greenhouse gas emissions.

Mandatory carbon and energy compliance in the UK

Streamlined Energy and Carbon Reporting (SECR):

Quoted companies have been required to publicly report on their greenhouse gas emissions for a number of years, but under SECR, which came into force in April 2019, the rules have been extended to other companies too.

SECR requires all large UK companies and large LLPs, as well as all quoted companies, to report on their annual energy use, greenhouse gas emissions and energy efficiency actions they have taken. It’s estimated that 11,900 firms fall under the scheme.

For a more in-depth explainer, download our SECR pocket guide.

Energy Savings Opportunity Scheme (ESOS):

ESOS is a mandatory energy assessment scheme for large organisations in the UK. Organisations in scope of the scheme need to carry out audits of the energy used by their buildings, industrial processes and transport every 4 years, and identify cost-effective energy saving measures.

ESOS doesn’t require organisations to report on carbon/GHG emissions – but it does ask them to calculate their total energy consumption, as well as the most significant areas of energy consumption.

Companies that fall under both ESOS and SECR will be able to use the data and processes from their ESOS reporting to inform their SECR reporting.  The deadline for phase 3 of ESOS is 5 December 2023.

To learn more about ESOS, read our ESOS FAQs.

Display Energy Certificates (DECs)

DECs are required for large public buildings (over 250m²) that are frequently visited by the public. They were brought in to raise public awareness of energy use and to inform visitors to public buildings about the energy use of a building.

DECs provide an energy rating of the building from A to G, where A is very efficient and G is the least efficient and are based on the actual amount of metered energy used by the building over the last 12 months within the validity period of the DEC.

An affected organisation must display a DEC in a prominent place clearly visible to the public and have in its possession or control a valid advisory report. The advisory report contains recommendations for improving the energy performance of the building.

Energy Performance Certificates (EPCs)

An Energy Performance Certificate (EPC) rates how energy efficient a building is using grades from A to G.

All privately rented properties (both non-domestic and domestic properties) are required by law to have a minimum level of energy efficiency.  From 1 April 2018, landlords of non-domestic private rented properties (including public sector landlords) may not grant a tenancy to new or existing tenants if their property has an EPC rating of band F or G. From 1 April 2023, landlords must not continue letting a non-domestic property which is already let if that property has an EPC rating of band F or G.

Minimum standards are set to tighten too – possibly to EPC band B by 2030 (pending the outcome of a recent government consultation).

UK Emissions Trading Scheme

A UK Emissions Trading Scheme (UK ETS) replaces the UK’s participation in the EU ETS from 1 January 2021. It applies to energy intensive industries, the power generation sector and aviation. Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme. This limits the total amount of carbon that can be emitted and, as decreases over time, as we head towards the UK’s 2050 net zero target. Participants covered by the EU ETS must monitor and report their emissions each year and surrender enough emission allowances to cover their annual emissions.

Voluntary carbon compliance schemes in the UK

Thousands of firms across the world are going beyond the legal minimum by joining voluntary reporting schemes.

Here’s a quick guide to some of the major voluntary reporting schemes in the UK and globally.

Climate Change Agreements: Climate change agreements (CCAs) are voluntary agreements made between UK industry and the Environment Agency to reduce energy use and carbon dioxide emissions. In return, operators receive a discount on the Climate Change Levy (CCL), a tax added to electricity and fuel bills. An operator that has a CCA must measure and report its energy use and carbon emissions against agreed targets.

Gresb: Gresb is a global framework which assesses and benchmarks the Environmental, Social and Governance (ESG) performance of real assets (such as real estate and infrastructure), providing standardised and validated data to the capital markets. The 2020 real estate benchmark covers more than 1,200 property companies, real estate investment trusts (REITs), funds, and developers. Combined, GRESB represents US $5.3 trillion in real asset value.

CDP: CDP is a global environmental disclosure system adopted by over 9,600 companies globally to date. Organisations signed up to the scheme report through CDP on climate change, water security and forests. Over 800 cities have also disclosed environmental information through CDP.

The Science Based Targets initiative: Science-based targets provide companies with a clearly-defined path to reduce emissions in line with the Paris Agreement goals, and they may soon become standard business practice. More than a thousand businesses around the world are already working with the Science Based Targets initiative (SBTi), a framework which requires you to set a validated emissions target, as well as disclose your emissions and target progress annually.

ISO50001: ISO50001 is a globally recognised framework for organisations to develop an effective energy management system. Following the “Plan-Do-Check-Act” process, it requires organisations to measure their energy use, and set reduction targets and objectives to meet those targets.

Further advice

Whatever your firm’s carbon compliance obligations, gaining an accurate picture of your emissions carries a host of benefits; revealing opportunities for financial savings and preparing your business for increasingly stringent government and investor requirements.

For advice on which reporting/compliance schemes your business falls under, and how you can best go beyond the legal minimum, get in touch.

www.secrhub.co.uk

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