Carbon and Energy Newsletter - October 2022

This month’s update has a lot to cover, with plenty of changes and deadlines coming up for carbon and energy compliance. The UK ETS has delayed its transition to their new reporting system and SBTi have released methodologies relating to Cement and Food Land and Agriculture (FLAG) emissions. There’s a lot going on with the future of the CCA scheme, along with HMRC State Aid submissions and TP5 variation deadline/data collection. On top of all this, there has also been an extension to the Energy Transformation Fund, the latest UK Government carbon conversion factors released and ESOS phase 3 is beginning to get underway with a few changes. Read on to discover more…

UK Emission Trading Scheme – New Reporting System

In a recent update, the government announced that the Emissions Trading System Workflow Automation Program (ETSWAP), will be moving to a new Permitting, Monitoring, Reporting and Verification (PMRV) system. The role-out for the new system was originally expected to be October 2022, however this has now been delayed until 2023. An exact date for the new system is still yet to be confirmed, therefore the ETSWAP system will remain in use until a date has been established. It is still advised that all operators in UK ETS should download any documents on the current ETSWAP system for archiving purposes. All operators will continue to use ETSWAP for their compliance activities, including submission of permit variations, notifications, and 2022 annual emission reports, until further notified. More information can be found here.

We will keep you updated with any future changes and confirmed dates going forward. Please feel free to get in contact if you require any support with participating in UK ETS.

Carbon Price

A review of the trends and current costs associated with the UK ETS allowance price shows that prices currently track similar to, but generally slighter higher than, the EU allowance price at an average of around £79/tonne. They peaked in August and September at £97/tonne, however since mid-September there has been a general downward trend to £73 in early October. Further details on the UK Emissions Trading Scheme markets can be found here.

EEI COMPENSATION SCHEME

In June’s newsletter we noted that the government had introduced a scheme designed to enable energy intensive industries deemed to be exposed to a significant risk of carbon leakage to be compensated from the indirect costs of the UK ETS and Carbon Price Support (CPS) systems incorporated into their electricity costs. This scheme is still open, and to be eligible your business needs to be within an eligible sector (predominantly related to chemical, metals, textiles and paper manufacture) and meet the cost impact criteria – indirect carbon costs being 5% or more of GVA over a given period. Eligible businesses can subsequently claim for compensation equivalent up to 1.5% of their GVA or 75% of their total indirect emissions costs, whichever is greater. More information can be found here.

SBTi - Cement and FLAG Guidance procedures

The Science Based Target initiative (SBTi) has launched new standards providing a specific set of criteria for businesses in the cement and land-intensive sectors.

The SBTi’s Forest, Land and Agriculture (FLAG) Guidance includes land-based emission reductions and removals for companies in land-intensive sectors. The target must include a short-term science-based reduction target in line with 1.5°C pathways, with GHG removals including actions such as improving forest management practices and enhancing soil carbon sequestration on working lands. A zero- deforestation target must also be set for no later than 2025. Long term targets will require a reduction of at least 74% of emissions by no later than 2050 and will also follow SBTi’s Net Zero standard. Further details and resources can be found here.

The Cement Science Based Target Setting Guidance provides a framework for companies in the cement sector and other potential users of cement (such as construction businesses) to set near- and long-term science-based targets in line with 1.5°C. These must be achieved through real emissions reductions within a company’s Scope 1, 2 and 3 emissions. Further details and resources can be found here.

Climate Change Agreements (CCA)

A lot of activity is coming up for CCA’s including HMRC State Aid, TP5 variation deadline and data collection, and government consultation on the future of CCA’s.

The end of TP5 reporting is now only just over two months away! Any variations/change of ownership applications (such as facility exits, base year data corrections, etc.) need to be submitted by 31st December. There will also be upcoming requests in the new year to submit TP5 data.

CCA scheme participants are required to provide HMRC with data on their received CCL relief which exceeds the current threshold of £451,535 for the reporting period of 1st January to 31st December 2021. To ensure the continuation of tax benefit under the CCA scheme, businesses that have received an annual tax relief benefit exceeding the threshold need to complete the required questionnaire and return it via post to HMRC by 15th November 2022.

Last but not least, in mid-November there will be a government consultation regarding the future of the CCA scheme. It is currently unclear whether this will involve changes to the scheme or a potential extension. The result of this will be communicated once it is released.

Energy Transformation Fund (IETF) – Autumn Phase 2

The Department for Business, Energy and Industrial Strategy (BEIS) has opened a new Phase 2: Autumn 2022 competition window for the £70 million Industrial Energy Transformation Fund (IETF). The fund provides grant funding towards the costs of: feasibility and engineering studies to investigate identified energy efficiency and decarbonisation projects prior to investment, projects to deploy energy reduction technologies, and projects implementing technologies that achieve emission savings. The competition is open to the manufacturing, mining and quarrying, material recovery/recycling and data centre sectors. The funding thresholds range from £30k to £30 million and the competition is open for applications from Monday 10th October 2022 and will run until Friday 13th January 2023. Further information can be found here.

UK Conversion Factors

Earlier this year the UK Government published the latest set of conversion factors for use in the reporting of GHG emissions. The conversion factor associated with the use of electricity from the national grid has continued its downward trend and is now just 0.19kgCO2e/kWh, a 9% reduction compared to the previous year, following a year-on-year trend from 2021 and 2020 which also saw 9% reductions. This is due to a further decrease in the use of coal powered generation, as it is replaced by increased levels of renewable energy generation.

A new addition to the dataset is a conversion factor for emissions from homeworking. This is due to the impact of Covid-19 providing an increased relevance in being able to estimate the emissions associated with working from home. The full set of conversion factors can be found here.

ESOS Phase 3

ESOS Phase 3 is underway and in full swing ahead of the 5th December 2023 compliance deadline. The qualification criteria remain the same, however the recent ESOS consultation has resulted in some changes that will be implemented for this Phase:

• A minimum of 95% of the total energy consumption must be considered rather than 90%
• The addition of an energy intensity metric in ESOS reports
• Requirement to share reports with subsidiaries
• Requirement next steps for information on implementing recommendations and an action plan which will be followed up in ESOS phase 4
• Collection of additional data for compliance monitoring and enforcement

SLR’s Carbon & Energy Management team can provide support in all the above areas. If you need any assistance or require further information, then please contact us.