Carbon and energy newsletter - May 2021

There has been a lot of activity in the area of carbon and energy policy in recent months. The UK government has set a new climate change target of reducing emissions by 78% by 2035 (from a 1990 baseline), published in its Industrial Decarbonisation Strategy, which sets out the roadmap to reducing industrial emissions in the UK. April also saw the end of the UK’s involvement in the EU ETS. These and other updates to UK carbon and energy legislation are summarised below.

Industrial Decarbonisation Strategy – Carbon labelling

The UK Government published its Industrial Decarbonisation Strategy document in March. The strategy laid out how the government intends to support the industrial sectors in the drive to achieve Net Zero without pushing emissions and business abroad. A number of key topics are covered including: Carbon Capture Usage and Storage (CCUS), fuel switching, the use of hydrogen as a fuel source, and the impact of carbon pricing.

From a carbon reporting perspective, of particular interest is the discussion around the introduction of a carbon labelling scheme in relation to embodied carbon in products (potentially starting with a voluntary system commencing in 2025). This would require businesses to develop a greater understanding of Scope 3 (indirect) emissions relating to the supply chain of a product. The full document can be found here https://www.gov.uk/government/publications/industrial-decarbonisation-strategy

UK ETS Allowance Allocation Announced

As the UK’s involvement in the EU ETS came to a close, activities relating to the new UK ETS began in earnest. Participants are being asked to set up contacts on the UK Registry, for trading and setting allowances, the first auction of UK allowances will take place in May and BEIS has published the list of free allocations for the first 5 years of the scheme. The list can be found here https://www.gov.uk/government/publications/uk-ets-allocation-table-for-operators-of-installations. We would recommend that participants in the scheme check the allocation against the initial estimated allocation identified in your NIMs data submission from 2019. The first allowance auction will take place in May and as the EU carbon allowance price recently exceeded €50/tonne, it will be very interesting to see what price the UK allowance auction reaches!

Industrial Energy Transformation Fund (IETF)

The Department for Business, Energy and Industrial Strategy (BEIS), recently opened the latest phase of the Industrial Energy Transformation Fund (IETF). The scheme represents the opportunity for businesses in England, Wales and Northern Ireland to bid for a share of £40 million in grant funding for projects relating to: ‘the deployment of mature energy efficiency technologies that improve industrial process energy efficiency and reduce energy demand’, and ‘feasibility and engineering studies for projects deploying mature energy efficiency technologies or deep decarbonisation technologies’.

The competition window opened for applications on 8th March and will close on 14th July 2021. Further information can be found here: https://www.gov.uk/government/publications/industrial-energy-transformation-fund-ietf-phase-1-spring-2021-how-to-apply

CDP Reporting Window Open

The 2021 CDP (Carbon Disclosure Project) reporting cycle is now open. Organisations wishing to disclose to CDP have until the 28th July to complete a disclosure submission. If you are thinking of joining the approximately ten thousand business that currently disclose, we would recommend kicking off the compilation of your disclosure a.s.a.p. If your organisation is also reporting under the Task Force on Climate-related Financial Disclosures (TCFD) methodology, it is worth noting that CDP’s climate questionnaires are fully aligned with the TCFD recommendations. Our carbon and energy team already work with a number of business in the preparation of the CDP disclosures, so please contact us if you wish to discuss further.

TCFD Reporting to Become Mandatory

On the subject of TCFD reporting, the government has announced plans to make this mandatory for UK companies and investors in a phased approach from 2021.

TCFD disclosures are structured around four thematic areas that represent core elements of how organisations operate: governance, strategy, risk management, and metrics and targets. A key aspect of this process is the undertaking of a scenario analysis exercise, looking into the potential effects of climate change on a business that are likely to emerge over the medium to longer-term.

The UK is one of the first countries in the world to introduce a phased approach to TCFD reporting for companies and investors. Measures were initially announced in November 2020 and further clarification is expected in summer 2021. Further details can be found in the government’s ‘Roadmap towards mandatory climate-related disclosures’ which can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/933783/FINAL_TCFD_ROADMAP.pdf

For assistance in ensuring your organisation is prepared for the changes and aligning to best practice, please contact our team.

Climate Change Agreement (CCA) ‘buy-out’

Target Period 4 (TP4) reporting has just been finalised and performance data submitted to the Environment Agency. Operators who have failed their TP4 target, and who don’t have enough carbon surplus to offset the failure, will have been issued with a ‘Memorandum of Account’ (MoA) from the EA last week. This will outline the amount of carbon ‘buy-out’ that is required to be paid, so that the target unit can be recertified, and therefore entitled to claim the CCL discount for the next two-years. Payment must clear in the specified BEIS bank account before the 1st July 2021.

SLR can support your business application through the identification of projects, initial assessment of potential eligibility and completion of the application documentation.

SLR’s Carbon & Energy Management team can provide support in all of the above areas of carbon and energy reporting and management.