Regulatory Compliance - Burden Or Opportunity?
Meeting the requirements of energy and carbon reporting legislation places a significant burden on UK businesses. But there is a simpler route to compliance and, as Matt Dracup, Energy Services Director at ENGIE explains, the data and insights gained can unlock important opportunities for energy, carbon and cost saving.
Complying with energy and carbon reporting legislation has become part of business as usual for all large energy consumers. In April, the government introduced a new Streamlined Energy and Carbon Reporting framework (SECR) for UK businesses, which replaced the CRC Energy Efficiency Scheme. The new framework is a reporting-only obligation, with no requirement to purchase allowances, as there was under CRC. That means a simplification of compliance requirements, as well as an apparent cost saving for any businesses that were previously signed up to the CRC scheme – although the cost savings will be offset by increases in the Climate Change Levy (CCL).
SECR runs alongside the Energy Savings Opportunity Scheme (ESOS), with its requirement for regular energy audits covering 90% of a company’s energy consumption. These reporting obligations place a burden on any business and require considerable resources to ensure compliance, particularly for larger industrial organisations. Whether these resources are found in-house or sourced from specialist energy consultants, they demand cost and time. However, complying with the auditing and reporting requirements of this legislation generates valuable data and insights which offer significant opportunities for a business to improve efficiency, productivity and performance, while reducing costs and carbon emissions.
What does SECR mean for your business?
Before we consider the opportunities afforded by regulatory compliance, let’s take a look at the new SECR legislation and what it means for businesses. All large UK incorporated companies are required to comply with SECR if they meet two of the following three qualifying conditions:
- at least 250 employees
- an annual turnover greater than £36m
- an annual balance sheet total greater than £18m.
It’s estimated that almost 12,000 UK organisations will need to comply with SECR regulations, many of which are large unquoted companies and Limited Liability Partnerships (LLPs) that haven’t previously had to report on energy and carbon.
The scheme changes the requirements for energy and carbon emissions reporting, putting more responsibility on organisations to choose how they measure and report their emissions.
SECR requires businesses to include their energy use (including electricity, gas and transport) emissions, plus an energy intensity metric and a report on energy-efficiency actions taken during the year, in their annual Directors’ reports. This applies to financial years beginning on or after 1 April 2019. The government has created guidance on good practice, but hasn’t specified the exact procedures that should be used for energy and carbon reporting, nor which intensity metrics to use.
Quoted companies must continue to report on scope 1 and 2 greenhouse gas emissions (direct greenhouse gas emissions from owned or controlled sources and indirect emissions generated by purchased energy). In addition, they are required to report on global energy use, where appropriate. Reporting of scope 3 emissions (all indirect emissions not included in scope 2) remains voluntary.
A more integrated regulatory landscape
SECR has been designed to make energy and carbon reporting simpler, aligning with existing reporting mechanisms to reduce the burden of compliance requirements on organisations. While it replaces the CRC scheme, so businesses no longer have to purchase carbon allowances to cover their carbon emissions, the CRC charges have instead been added to the Climate Change Levy (CCL). This has increased the CCL on electricity to 0.847p/kWh, and on natural gas to 0.339p/kWh – increases of 45% and 67% respectively. This means that Climate Change Agreements (CCAs) are now more valuable to businesses than ever, since they ease the impact of CCL costs on manufacturing and industry by giving CCL relief in exchange for a commitment to improving energy efficiency.
SECR now sits alongside ESOS as the primary environmental legislation with which UK businesses must comply.
The data that businesses must collect in order to achieve compliance with these regulations provides all the information required to understand where and how energy is consumed within the organisation. These valuable insights enable energy and resource saving measures to be identified and implemented.
But ensuring data and insights are analysed and acted upon regularly, as part of business as usual, and ensuring that the effects of any energy-saving measures are monitored and adapted to deliver the greatest savings, is a significant challenge for any business.
Single route to compliance: ISO 50001
With all this in mind, ENGIE has found that the best route to compliance with all of the current environmental legislation – as well as the best way to deliver ongoing savings – is ISO 50001 certification. If a business meets the requirements of this international energy-management accreditation, it is certain to meet the requirements of any government carbon-reduction legislation.
ISO 50001 supports organisations in all sectors to use energy more efficiently, through the implementation of a robust energy-management system. This system offers a well-designed management structure that requires organisations to develop a policy for more efficient energy use, to set targets and objectives, to use data to better understand and manage energy use and to continuously improve energy management. It is a certification with an ongoing requirement to plan energy-saving activities, implement them, check the results and take action to optimise energy use.
ISO 50001 requires the management system to be embedded throughout the business. It puts a framework in place to ensure energy efficiency is considered in every aspect of business operations. That includes training employees in energy awareness, implementing better control of assets, investing in energy-efficient technology and equipment, improving energy procurement and demonstrating that energy management is considered in all business decisions. ISO 50001 formalises this process to ensure it is enacted throughout the business, with regular reviews to monitor progress and ensure continuous improvements are being made. Organisations that achieve certification are audited regularly to ensure the management system is being maintained and implemented properly.
The result of implementing this energy-management system is that the entire organisation is oriented around improving energy management, and hence carbon management. ISO 50001 compliance also includes a legal register, which provides proof that the business complies with all relevant legislation for its sector.
The data and metrics gathered as part of business as usual under ISO 50001 will provide all the information needed for compliance with SECR, and accreditation is recognised as a route to compliance with ESOS.
Extracting value from compliance data
Having all this valuable data on energy use at your fingertips at all times provides a wealth of opportunities for improving energy efficiency, operational efficiency and productivity. It enables a business to see where and how energy is being consumed, so it can be better controlled to achieve savings. It can provide all the data needed for participation in demand-side response schemes, enabling a business to earn income from flexibility in its energy use. Optimising resources to achieve energy-efficiency improvements will deliver benefits across the business.
SECR requires businesses to report on their energy intensity, using the most appropriate metric for their industry. This is typically reported in kWh of energy consumed per unit of production. An additional benefit of measuring and reporting on energy intensity is that it puts the business in a better position to secure a climate change agreement (CCA). As mentioned earlier, businesses with a CCA in place qualify for a significant reduction in CCL payments. Because CCL charges have increased significantly since the introduction of SECR, reducing these payments is more important than ever. To achieve a CCA, an organisation must commit to an agreed percentage reduction in its energy intensity each year. The need to report on energy intensity under SECR means this information will be readily available for CCA qualification.
Long-term benefits of ISO 50001 accreditation
The benefits of meeting regulatory standards extend beyond cost and energy savings. Businesses that comply with ISO 50001 can claim exemplary sustainable credentials, while implementing the energy-management system will deliver quantifiable benefits over the long term. It’s an important way in which businesses can create value out of the need to comply with the raft of environmental regulations in place today – as well as any new carbon-reduction legislation that may be introduced in the years ahead.
Find out more about ISO 50001.
This article was first seen in the Summer 2019 edition of MEUC Buying and Using Utilities magazine.