Summary
With new mandatory energy and emissions frameworks, corporate sustainability reporting is becoming more complex and challenging.
This article will summarise the requirements for each of the mandatory energy and emissions frameworks and an overview to help you manage them.
What you will learn
- Summary
- Introduction to Mandatory Energy and Emissions Frameworks
- 1. Streamlined Energy and Carbon Reporting (SECR)
- 2. Energy Savings Opportunity Scheme (ESOS)
- 3. The Environmental Permitting Regulations (EPR)
- 4. The EU Emissions Trading Scheme (EU ETS)
- 5. The UK Emissions Trading Scheme (UK ETS)
- Sustainability reporting guides
Introduction to Mandatory Energy and Emissions Frameworks
Mandatory Energy and Emissions Frameworks are set to play a key role in attaining and proving compliance, as pressure is placed on businesses to become more transparent and proactive with their sustainability efforts,
1. Streamlined Energy and Carbon Reporting (SECR)
Streamlined Energy and Carbon Reporting (SECR) is a mandatory reporting regulation specific to the UK, which has been in effect since April 1, 2019.
The SECR replaced the Carbon Reduction Commitment (CRC) energy efficiency scheme and significantly expanded the number of companies required to report their energy usage and carbon emissions from 1,600 to over 10,000.
Who does this affect?
These requirements affect:
- all UK incorporated companies listed on
- the main market of the London Stock Exchange
- a European Economic Area market
- or whose shares are dealing on the New York Stock Exchange or NASDAQ
- unquoted large companies incorporated in the UK, which are required to prepare a Directors’ Report under Part 15 of the Companies Act 2006
- large Limited Liability Partnerships (large is defined as per the existing framework for annual accounts and reports, based on sections 465 and 466 of the Companies Act)
In a reporting year, exemptions are afforded to low-energy users if an organisation’s energy use is less than 40,000 kWh.
What is reported?
Reporting for the SECR will differ for quoted and unquoted companies.
Quoted companies must report:
- Global Scope 1 and 2 emissions
- Underlying global energy use that’s used to calculate GHG emissions
- Proportion of emissions and associated energy relating to the UK & offshore
- The previous year’s figures for energy use and GHG emissions
- Methodologies used in the calculation of disclosures
- Information about energy efficiency actions implemented in the organisation’s financial year.
Large unquoted companies and LLPs must report:
- UK energy use and associated emissions (at a minimum report purchased electricity, gas, and transport fuel for business travel, including fuel used in personal or hire cars on business use
- At least one emissions intensity ratio
- The previous year’s figures for energy use and GHG emissions
- Methodologies used in the calculation of disclosures
- Information about energy efficiency actions implemented in the organisation’s financial year.
The Director’s Report is required to include disclosure.
What are the benefits?
Benefits of SECR include:
- Increasing awareness of energy costs within your organisation
- Provision of data to inform the adoption of energy efficiency measures
- Reducing your organisation’s impact on climate change
- Providing greater transparency for stakeholders
- Alignment with the TCFD Metrics and Targets section.
2. Energy Savings Opportunity Scheme (ESOS)
The ESOS is a mandatory energy assessment scheme for UK organisations within the qualification criteria.
ESOS organisations must undertake comprehensive assessments of total energy consumption and energy audits to identify cost-effective energy savings opportunities.
This operates in four-year compliance cycles so ESOS is now in Phase 3 and the deadline for compliance was June 5, 2024.
This is the UK’s implementation of Article 8 of the EU Energy Efficiency Directive (EED). Each country has implemented the directive slightly differently, so steps to compliance vary between participating countries.
Who does this affect?
An undertaking is mandated to comply with ESOS legislation if, on the qualification date, the company is:
- A UK undertaking with 250 or more employees, or
- A UK undertaking with fewer than 250 employees, but has:
- An annual turnover exceeding €50m, and
- A balance sheet exceeding €43m, or
- Part of a corporate group including a UK undertaking that meets the above criteria.
What is the route to compliance?
- Firstly, corporate groupings for qualification and participation must be determined.
- Next, determine the total energy consumption for the organisation for a 12-month reference period. This includes all input energy use in the UK, such as buildings, industrial processes, and transport. It must be calculated in a common unit.
- Identify the significant energy consumption by identifying assets and activities that amount to at least 95% of your total energy consumption. In Phase 3, the ESOS de minimis threshold has been reduced from 10% to 5%.
- Then, determine your compliance route. The preferred ways to comply with ESOS are either ISO 50001 certification or ESOS-compliant energy audits, the most common route.
- The key output from the different compliance routes is identifying potential energy efficiency opportunities within the business and gaining visibility at the board level.
- Next, appoint the ESOS lead assessor and sign off. Once completed, a board-level director and the ESOS lead assessor will be required to sign off on the ESOS compliance.
- You can then notify the Environment Agency, (EA) before the compliance deadline.
The scheme is designed to spread the workload across the four-year ESOS cycle. This helps identify energy efficiency measures continuously and not just in the compliance deadline year.
What are the benefits?
Some of the benefits of the ESOS include:
- It allows companies to identify energy efficiency measures that can lead to cost savings.
- It enables companies to make annual comparisons and to track their energy efficiency progress.
- It provides board-level visibility of energy consumption and costs alongside opportunities for reducing it.
- It provides greater clarity into implementation processes.
3. The Environmental Permitting Regulations (EPR)
The detailed application must demonstrate that the installation uses the best available techniques (BAT) to manage environmental impacts and that there is no current or future risk to sensitive receptors. The operator must then follow the conditions outlined within the permit.
Who does this affect?
The nine classes of regulated facilities under the EPR are those carrying out the following:
- A combustion installation of more than 50MWth
- A mobile plant
- A mining waste operation
- A radioactive substance activity
- A water discharge activity
- A small waste incineration plant
- A waste operation
- A groundwater activity
- A solvent emission activity.
Compliance with the EPR is met with the following conditions:
1. Those who meet inclusion criteria must legally hold a permit
2. Those possessing a permit must comply with the conditions agreed upon in their permit.
Possible action from regulators
The Environmental Agency (EA) is under authority to carry out the following:
- Assessments and inspections where officers conduct either a desk-based or site visit assessment of compliance with your permit. A Compliance Assessment Report (CAR) will be completed by the officer and a copy will be made available.
- The EA may act if they suspect non-compliance with actions including:
- AdviceChanging permit conditionsServing you with an enforcement notice stating the problems to fix and by when
- Serving you with a suspension notice if there’s a risk you might pollute
- Prosecution
- The EA can undertake work or intervene to address an environmental problem and recover your costs.
- The EA regularly updates permits to reflect the latest regulations and environmental standards.
From October 2023, a permit can be granted in England for:
Any groundwater activity intended to adjust the effects of pollution in groundwater via the injection of any substances that increase the flow of fluids or gas for extraction.
Furthermore, from October 1, 2024, more materials facilities will need to sample and report their waste, specifically those that receive and manage at least 1,000 tonnes of household waste per year, including single-waste streams or pre-separated waste.
These facilities must provide self-assessments at the start of every three-month reporting period and will report on:
- The weight of waste material received from suppliers
- The names and addresses of the suppliers of each load
- The date each load of waste was received
- The weight of material leaving the site, the date this occurs, and the destination.
- Sampling measurements for input materials and, if necessary, output materials.
4. The EU Emissions Trading Scheme (EU ETS)
EU ETS is a cap-and-trade system, meaning that the total amount of emissions released by regulated facilities is capped. The EU then auctions allowances (one per tonne of CO2 equivalent) corresponding to the cap each year. It was established by Directive 2003/87/EC and was subsequently amended by Directives 2008/101/EC, 2009/29/EC, and 2018/41.
Market participants can purchase allowances at auctions or on the secondary market, where they can also sell them. Regulated entities must report annual emissions annually and then surrender enough allowances to cover them.
The system is currently in Phase 4, which runs between 2021 and 2030. However, the annual cap will be reduced at an increasing rate as the EU reforms the ETS to reduce emissions in the regulated sectors by 62% (from 2005) by 2030.
From 2024, the maritime sector will be integrated into the ETS for the first time. A separate system (known as ETS II) will also commence for building and road transport fuels in 2027.
Both the ETS and ETS II have mechanisms for releasing allowances into or removing them from the market to control prices.
What are the criteria for compliance?
Compliance here is related to the industrial installations and the combustion capacity on-site. It concerns the sectors noted in Annex I of the ETS Directive (2009/29/EC):
- Electricity and heat production
- Energy-intensive industrial sectors, such as oil refineries, steel mills and the production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, board, acids and bulk organic chemicals
- Commercial aviation
- Due to the new “Fit for 55” negotiations, compliance will also affect maritime entities starting in 2024.
What is reported?
When applying for a GHG emission permit, an operator of the EU ETS must propose a monitoring plan that specifies how the installation’s GHG emissions will be measured and reported.
It must also be drawn up in alignment with the European Commission’s monitoring and reporting regulation (Regulation (EU) 2018/2066) and receive approval from an inspection body. Participants are required to report their emissions data on an annual basis.
All annual emissions and monitoring reports are verified by an accredited external verifier. From 2024 onwards, the EU ETS framework has been expanded to include shipping.
What are the benefits?
The EU ETS offers a range of benefits and advantages, including:
- Covering approximately 40% of EU GHG emissions
- Serving as a key support for the EU’s emissions targets
- Providing decarbonisation incentives while enabling flexibility and economic efficiency through allowance trading
- Contributing to 35% reduction of emissions in covered sectors between 2005 and 2019, mainly in the power generation sector.
5. The UK Emissions Trading Scheme (UK ETS)
Like the EU ETS, the UK ETS operates as a cap-and-trade system, setting a limit on total greenhouse gas emissions to establish a carbon market and encourage decarbonisation through a carbon price signal.
Participants in the scheme must acquire and surrender allowances to cover their annual emissions of greenhouse gases. These allowances can be obtained through auctions or traded among participants.
In response to the consultation conducted in 2019 regarding the UK’s departure from the EU Emissions Trading System, the Scottish Government, UK Government, Welsh Government, and Northern Ireland Executive jointly announced plans to establish the UK Emissions Trading Scheme (UK ETS) effective from January 2021.
Who does this affect?
The UK ETS applies to energy-intensive industries, the power generation sector, and aviation.
The aviation routes covered by the UK ETS include UK domestic flights, flights between the UK and Gibraltar, the UK and Switzerland, and flights departing the UK to European Economic Area states conducted by all included aircraft operators, regardless of nationality.
What is reported?
This has a similar scope to the EU ETS, mandating participation for the power sector, energy-intensive industries, and aviation. The scheme encompasses around 100 participants in Scotland, accounting for 28% of Scotland’s greenhouse gas emissions.
There’s a cap on emissions at 5% less than the UK’s notional share of the EU ETS cap. In 2024, alongside other governments, there may be changes implemented to ensure the cap aligns with net-zero ambitions.
The obligations of participants, especially for monitoring, reporting, and verification, are based on the EU ETS phase IV requirements. The Scottish Environment Protection Agency (SEPA) will continue to regulate Scottish participants with enforcement powers to ensure compliance with the UK ETS rules.
What are the benefits?
There is a wealth of benefits related to the UK ETS. These include:
- It caps total greenhouse gas emissions, promoting a reduction in carbon emissions
- It establishes a carbon market with a price signal to incentivise decarbonisation efforts
- It requires participants to obtain and surrender allowances, encouraging emission reductions
- It allows participants to trade allowances, enabling cost-effective emission reductions
- It aligns with the UK’s commitment to achieving carbon neutrality by 2050
- It covers major sectors such as power, industry, buildings, waste, transport, and domestic aviation
- It promotes transparency and accountability through clear disclosure requirements
- It strengthens the regulatory framework for managing greenhouse gas emissions.
Sustainability reporting guides
This guide to mandatory sustainability reporting frameworks is part of a wider series where we’ve detailed all the voluntary and mandatory reporting requirements for sustainability and carbon reduction across various sectors.
You can find more guidance in the other articles in this series here:
- Mandatory sustainability frameworks
- Mandatory sustainability frameworks for financial institutions
- Mandatory energy and emissions sustainability frameworks
- Voluntary sustainability frameworks
- Voluntary energy and emissions sustainability frameworks
- Voluntary sustainability frameworks for financial institutions
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