Carbon and energy newsletter (UK) - March 2024

2024 is already looking like a big year for changes to various legislation and submission deadlines, here’s what’s covered in this edition of the newsletter:

• The Climate Change Agreement scheme has been extended and includes updates to the scheme which will continue providing discounts until 2033.
• SBTi and CDP have ongoing updates to their disclosure platforms, as published data highlights the exponential growth in popularity for companies carrying out environmental reporting.
• Upcoming ESOS and IETF deadlines are quickly closing which companies need to be aware of.
• The Corporate Sustainability Reporting Directive (CSRD) is being rolled out in 2024 with criteria which many impact large UK businesses operating in the EU – so a lot to fit in!

Climate Change Agreements (CCA)

TP6 Extension

Those in eligible sectors and captured under a Climate Change Agreement (CCA) should now be aware that the legislation for a Target Period 6 (TP6) extension scheme came into force on 31st December 2023. This includes a non-reporting (gap year) for 2023, whereby companies are currently in the process of collating data which will influence future target setting for their sectors. It is therefore still vital that responses to data requests are submitted prior to their provided deadlines.

TP6 will follow the gap year and report only one year of data (2024 calendar year) with expected data collection requests to be sent in early 2025. Following TP6, there will then be a further two-year Certification Period (CP7) whereby those in the scheme will continue to benefit from discounts until 31st March 2027. The eligibility requirements and required data for TP6 have not changed and will mirror previous target periods. TP6 will however see the introduction of mandatory reporting for the disclosure of energy efficiency measures carried in 2024 at a Target Unit (TU) level. It is expected this will eventually progress into facility level disclosures for future target periods. It is also worth noting that the buy-out cost will increase in TP6 from £18/tCO2e to £25/tCO2e, therefore many businesses are beginning to get ahead of this by forecasting their results and potential buyouts based on 2023 data.

The Future Scheme

The government announced during their 2023 Autumn Statement that a new six-year Climate Change Agreement scheme will follow the TP6 extension. The new scheme will incorporate changes following responses to previous consultations for improvements of the scheme. The format and structure will remain the same by undergoing compulsory two-year Target Periods, which will provide subsequent two-year Certification Periods. It is proposed that existing sectors will retain their eligibility to allow for consistency up to 2033, however every sector will be required to re-prove eligibility. New sectors are invited to apply for eligibility, and this will be based on an updated criteria focussed on trade and intensity. Any new sectors will also be required to go through a full Target Period of reporting before they can begin a Certification Period in which they can receive their discount.

Updates to the new scheme will include:

1. an updated baseline year which will move from 2018 to 2022.
2. facility level data reporting against targets rather than target unit.
3. a continued focus on energy efficiency for action taken to meet targets and evidence of energy efficiency and decarbonisation potential.
4. surplus savings can be carried forward between Target Periods.
5. conversion factors will be reviewed every 2 years.
6. inclusion of UK Emissions Trading Scheme (UK ETS) energy in target energy.

More information on the new scheme can be found on the Government's 'Climate Change Agreements: consultation on a new scheme' webpage [1].

UK Emission Trading Scheme (UK ETS)

The hospitals or small emitters (HSE) emissions and targets report has recently been released which lists all of the installations registered as HSEs in the UK ETS for 2021 and 2022. It highlights for each installation the emissions target assigned by the regulator, and actual emissions for 2021 and 2022. Analysis of the data identified that a total of 248 sites were captured under the opt out scheme in 2022 and emitted a combined 2.3mtCO2e. This exceeded the target by 242k tCO2e in 2022 and required a total buy-out of £12.7m (civil penalty) based on £52.56 per tonne.

For 2023 annual reporting the buy-out price significantly increased to £83.03, however for 2024 this will reduce to £64.90. Sites can apply to join the opt out scheme between 1st April - and 30th June 2024 for the next phase (details to be confirmed by the EA soon).

Also worth noting, in February the EA issued an update to UK ETS participants in relation to the sustainability criteria of Biofuels. Participants who used biofuels in 2023 should check this update as it may impact on the eligibility of your biofuel as zero emissions.

Carbon price

A review of the current trends and costs associated with the UK ETS allowance show that prices are tracking at around £35/tonne. This demonstrates an ongoing downward trend for the cost per tonne of carbon dioxide since it spiked last year at the start of 2023. The EU allowance continues to be a different story, fluctuating at a higher rate around €60/tonne. Further details on the UK Emissions Trading Scheme markets can be found in the government's policy paper on the UK Emissions Trading Scheme markets [2].

Also, please do not forget to surrender your credits by 30th April in relation to your 2023 emissions.

Science Based Target initiative (SBTi)

The number of companies setting greenhouse gas (GHG) reduction targets and having them validated by the Science Based Targets initiative (SBTi) has doubled in 2023 (up from just over 2,000 in 2022 to just over 4,000 in 2023). This shows growing demand from companies in calculating their carbon footprint and using disclosure platforms such as SBTi. In 2024, SBTi have stated they will review the Corporate Net-Zero Standard for potential updates the following year and continue to review their sector specific guidance. A range of new standards include:

• Steel sector guidance [3]
• Automakers draft pathway [4]
• Buildings guidance [5]

There have also been updates to the SME definition in 2024 aligning to the European Union’s Corporate Sustainability Reporting Directive (CSRD) SME criteria [6].

More details on SBTi can be found here:

https://sciencebasedtargets.org/

CDP

The new CDP platform [7] will be available from April bringing a range of updates aimed to improve the efficiency of their disclosure process. This will be in advance of the questionnaires being released on 30th April, therefore companies should allow plenty of time to familiarise themselves with the changes. The response window is also a little different this year occurring later than usual as it opens for questionnaire submissions from 4th June and a deadline for completion by 18th September. This is to allow organisations to properly implement the changes to this year's questionnaire and process.

For those who are not familiar with CDP, it is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. These are captured under three questionnaires where companies can disclose their impact on climate change, water security and deforestation. It’s popularity as a platform grows year on year as in 2023, 23,000+ companies (up 24% from 2022), representing two-thirds of global market capitalisation, disclosed environmental data through CDP.

More information on CDP and support from SLR can be found in our previous article CDP 2024 essential milestones and what these mean for you.

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is a new framework which will be rolled out in the EU from 2024 using a phased approach. It will require companies to report on how sustainability issues (such as climate change) impact their business and include how their operations may affect people and the planet. This is a principle commonly referred to as ‘double materiality’. CSRD will apply to the following:

1. Companies listed on EU regulated markets (apart from listed micro-enterprises), and large companies. A large company is defined as meeting two out of three of the following criteria (also taking into account information at a subsidiary level):
   1. more than 250 employees,
   2. a turnover of over €50 million
   3. over €25m total assets.
2. Listed SMEs
   1. However, there will be a transitional period when SMEs can opt out until 2028.
3. Non-EU companies with a net turnover of €150 million in the EU, and with at least one subsidiary or branch in the union that meets with stated thrresholds.

Companies must publish information covering issues such as environmental, social and human rights in a dedicated section of their company management reports – usually included within their annual report.

Further detail and support from SLR can be found in our previous article 'Are you impacted by CSRD?'

ESOS

The ESOS reporting period is now drawing to a close after over a year of data collecting, site audits and report writing. The deadline for submission is the 5th of June 2024, therefore this is a reminder for eligible companies to ensure you have submitted all of the required data to your lead assessors and had the relevant discussions regarding the Phase 3 changes (released at the end of 2023). The portal for uploading compliance is currently expected to go live at some point in March, however no updates on this have yet been provided.

Industrial Energy Transformation Fund (IETF)

The Phase 3: Spring 2024 IETF competition window is coming to a close, therefore eligible businesses in England, Wales and Northern Ireland who are looking to bid for a share of grant funding up to £185m need to submit their applications before 3pm on Friday 19th April 2024.

The Industrial Energy Transformation Fund (IETF) is a grant support package for energy efficiency and deep decarbonisation technologies at industrial sites. It supports projects that would be unable to go ahead without the grant and has a range of eligibility criteria to follow for a successful bid. Funding is allocated across three competition strands, for which businesses can bid in any one or more strands:

1. Studies: feasibility and engineering studies to enable businesses to investigate identified energy efficiency and decarbonisation projects prior to making an investment decision.
2. Energy efficiency: deployment of technologies to reduce industrial energy consumption.
3. Deep decarbonisation: deployment of technologies to achieve industrial emissions savings.

The competition is open to the following sectors, organisations and professionals including:

1. Manufacturing
2. Data centres
3. Mining and quarrying companies
4. Recovery and recycling of materials companies.
5. Controlled environment horticulture
6. Industrial laundries

More details can be found on the competition page [8].

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.

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References:

[1] - https://www.gov.uk/government/consultations/climate-change-agreements-consultation-on-a-new-scheme

[2] - https://www.gov.uk/government/publications/uk-emissions-trading-scheme-markets/uk-emissions-trading-scheme-markets

[3] - https://sciencebasedtargets.org/news/worlds-steel-industry-set-for-transformation

[4] - https://sciencebasedtargets.org/news/have-your-say-sbti-launches-draft-interim-1-5-c-pathway-for-automakers

[5] - https://sciencebasedtargets.org/sectors/buildings

[6] - https://sciencebasedtargets.org/news/sbti-announces-updated-sme-definition-and-fees

[7] - https://www.cdp.net/en

[8] - https://www.gov.uk/government/publications/industrial-energy-transformation-fund-ietf-phase-3-spring-2024