Carbon & Energy Newsletter - July 2021

The main topics of discussion this week relate to the UK Emissions Trading System, with the guidance for ‘Opt-Out’ sites being published, plus further news on the price of allowances, and the government’s release of an ESOS consultation discussing some potentially significant changes designed to strengthen the scheme and possibly expand it to include a greater number of businesses.

ESOS Consultation

BEIS has published its consultation on options for ‘Strengthening the Energy Savings Opportunity Scheme (ESOS)’. The document reviews a variety of options designed to increase the uptake of energy reduction measures by participating organisations. Some of the proposals would represent significant changes to the existing scheme, but, crucially, the government is not, at this stage, considering mandating implementation of ESOS recommendations. Some of the key proposals include:

• The introduction of some (limited) level of standardised formatting for report outputs
• Reduction of the de minimis level (for exclusion from the requirement to audit) from the current 10% to 5%.
• Introducing a minimum threshold for the number of sites audited and the percentage of total energy consumption included in the sample.
• Display Energy Certificates and Green Deal Assessments to no longer be classified as routes to ESOS compliance, but encouragement to take-up ISO50001 would be increased.
• Introducing measures to encourage early compliance and potentially staggering the compliance dates/phases for different sectors.
• Broadening the scope of the audits to include carbon reduction measures, to align with the government’s Net Zero strategy.
• Increasing public disclosure to include a requirement for participants to publicly disclose an energy reduction target and action plan and progress made against the target to be disclosed annually.
• Alignment of the qualification thresholds for ESOS with SECR.
• Extending the scope of the scheme in the next phase to include Medium Sized Enterprises (MEs).

The consultation closes on 21st September 2021 and the full document can be found here.

UK ETS Guidance Published

The UK Government has published new guidance on how a site can ‘opt-out’ of the main UK ETS scheme if you are classified as a ‘small emitter’ (<25,000tCO2e per annum and a thermal capacity of <35MWth) or are a hospital (or 85% of your heat is supplied to hospitals). Applications are NOT open for the first 5-years of the scheme, but applications will open in April 2024 to opt-out for 2025-2030. ‘Opt-out’ installations are still required to report emissions but, rather than purchase and surrender allowances, are required to meet emissions target each year, paying a fine for exceeding the target (equivalent to the cost of carbon allowances). This isn’t necessarily a cheaper way of participating but the administrative burdens are reduced. The guidance can be found here.

UK ETS Allowance Price

At the first UK ETS allowance auction in May the clearing price was £44/tonne. Since then, the allowance price has remained fairly consistent. Auctions have continued, with the 5th auction in July resulting in a clearing price of £42/tonne. This is currently still broadly aligned with the EU ETS scheme allowance price, which has continued to trade at a price around €50/tonne.

Climate Change Agreements – Amendment Window

Just a reminder that the Environment Agency have published the details of the Target Period 5 (TP5) amendment window. The Amendments Window runs from 1st July 2021 to 30th September 2021. During this period, variations can be submitted to the CCA register for the following changes affecting TP5:

• Mandatory changes to replace estimated with actual data for the TP5 base year (January – December 2018). This will only be applicable to those agreements where their CCA sector association does not hold accurate or complete data for the period 1st January – 31st December 2018.
• Optional changes to align improvement targets with individual operators’ circumstances. The main two optional changes are the ability to change from an ‘absolute’ to ‘relative’ energy target, or for new sites that entered the scheme in 2021 for the first time, to ‘bubble’ with an existing agreement held by the same legal entity.

If you think either of these circumstances applies to you, please contact your CCA sector association in the first instance.

SLR’s Carbon & Energy Management team can provide support in all the above areas of carbon and energy reporting and management. If you need any assistance or require further information, then please get in touch