Does the new SECR framework affect you and does it impact the Energy Savings Opportunity Scheme - ESOS
Why do clients choose Smart GreenTech Solutions for the latest news on the Energy Savings Opportunity Scheme, ESOS Phase 2 compliance, Energy Efficiency, SECR and related Regulations in the UK?
We are a multi award winning and independent energy efficiency consultancy that are passionate about achieving Energy Savings Opportunity Scheme - ESOS and SECR compliance for our clients and improving the energy efficiency of their buildings.
The UK government recognised that the range of energy efficiency policies can create complexity and add burden to business consumers. That is why in 2016 the UK government announced reforms to improve the tax and reporting regime.
Reporting still has a valuable role to play, as what gets measured gets managed, and as such the UK government announced it would consult on a simplified energy and carbon reporting framework for introduction by 2019.
Alongside closure of the CRC Energy Efficiency Scheme after the end of the current phase and absorbing the price signal into the Climate Change Levy, the UK government launched the Streamlined Energy and Carbon Reporting (SECR) consultation on 12 October 2017 alongside the Clean Growth Strategy to gather views on what a new reporting framework could look like for introduction in 2019.
What emissions are in the scope of SECR?
UK quoted companies registered in the UK should;
• continue to be required, where practical, to disclose scope 1&2 greenhouse gas emissions (scope 3 will remain voluntary) and an intensity metric in their annual reports and;
• Should additionally be required, where practical, to report on global energy use.
Unquoted companies will be required, where practical, to report their UK energy use and associated scope 1 and 2 emissions and an intensity metric.
Further, energy use in scope for unquoted companies to be calculated and reported should as a minimum include electricity, gas and transport, with transport defined as road, rail, air and shipping (and the associated scope 1&2 emissions).
Unquoted companies can go beyond this minimum by for example including scope 3 emissions or other energy sources that are particularly material in the company’s operations.
When does SECR come into force?
The new Streamlined Energy and Carbon Reporting framework will come into force from April 2019.
The finalised guidance for reporting is expected to be published in January 2019 and will reflect the requirements for April 2019.
Who does SECR apply to?
The new Streamlined Energy and Carbon Reporting framework will apply to all qualifying companies and LLP’s throughout the UK.
In addition, it would also apply to qualifying UK registered subsidiaries of parent companies not registered in the UK, and public bodies which include limited company or LLP elements.
An UK wide approach is in line with other existing initiatives such as the Energy Savings Opportunity Scheme (ESOS) and Mandatory Greenhouse Gas Reporting (MGHG)
What is the SECR qualifying criteria?
The Government has decided that the new SECR reporting framework will continue to apply to all quoted companies and apply to large UK incorporated unquoted companies and LLP’s fulfilling at least two of the following conditions in the financial year;
with at least 250 employees or;
an annual turnover greater than £ 36m or;
an annual balance sheet total greater than £18m.
To reduce the administrative burden on companies that fall within scope but are very low energy users the SECR includes a statutory de minimis. Organisations using low levels of energy will not be required to disclose their SECR information if they can confirm that they used 40,000 kWh, or less, in the 12-month period.
This aligns with the ESOS approach, where the Environment Agency’s current enforcement guidance indicates it will not normally enforce the full requirements for users of less than 40,000kWh of energy.
How will SECR be reported?
The vehicle used for reporting under the Streamlined Energy and Carbon Reporting framework will be the Director’s report in the annual accounts. Whilst the UK government acknowledges some of the concerns raised about using this route, they are keen to benefit from the simplification and administrative burden reduction of aligning with existing mandatory greenhouse gas reporting.
This is also the main reason for using Director’s reports, due to the current obligation on quoted companies and as it was also the preferred place in Annual Reports of the majority of those who expressed a preference.
Additionally, use of Annual Reports is in line with The Financial Stability Board’s Taskforce on Climate related Financial Disclosures which recommends including climate-related disclosures as part of mainstream financial filings.
The Government has decided that participants under SECR will be required to provide a narrative commentary on energy efficiency action taken in the financial year but will not be required to disclose ESOS recommendations and how they have been taken forward (although they can do so). This will apply to both quoted, large unquoted companies and large LLPs.
Unquoted companies will be required to report intensity metrics but will be left to sectors and to existing best practice and guidance, which generally support a limited number of intensity ratios.
The UK government will also consider this issue in SECR guidance and look to work with businesses on potential consistency of ratios within sectors.
For companies with a financial year beginning the 1st of April 2019, SECR will be required to be included in the first set of accounts published following the 31st of March 2020.
For companies with a financial year beginning on the 1st of January 2019, SECR will be required to be included in the first set of accounts published following the 31st of December 2021.
How many companies will be affected?
The current requirement for reporting on GHG emissions is for quoted companies only. This would mean extending the number of companies that report the SECR information in annual reports from around 1,200 to 11,900, which is roughly the number already in scope of the Energy Savings Opportunity Scheme.
Large businesses (and other large undertakings) are already measuring their energy use under ESOS albeit there is no requirement for public disclosure. This means that approx. 11,900 companies would be reporting, in the absence of other thresholds, their energy and carbon emissions, as compared to approx. 4000 companies (and 1,200 other public and private sector organisations) under CRC.
How will the UK government recoup revenue they have lost from the sale of CRC allowances?
The Government has already legislated to increase the rate of Climate Change Levy in 2019 (to recover the revenue from abolishing the CRC in a fiscally neutral reform) and to remove provision for the CRC allowance sales after the end of the current Phase in 2019.
At Budget 2016 the Government announced that the main rates of the CCL will increase from April 2019 to offset the loss of revenue from closing the CRC. Also, the ratio of the electricity CCL rate to the gas CCL rate will be rebalanced from 2.9:1 to 2.5:1 from April 2019 and will reach 1:1 by 2025.
This rebalancing will mean an increase in the gas rate to reach parity with the electricity rate (which will also be increasing over this period). From 1 April 2019 the main CCL rates for electricity will increase from 0.583p/kWh to 0.847p/kWh and natural gas will increase from 0.203p/kWh to 0.339p/kWh, which will continue until the CCL rates for gas and electricity are rebalanced.
The specific CCL rates after 2019 have not yet been announced
Please feel free to contact us on 03300 881451 to learn more or to arrange a no obligation discussion of your specific situation. Alternatively, feel free to leave your details on our contact form and we will get back to you.