Carbon & energy newsletter (UK) - April 2023

Spring has arrived and with it comes the latest IPCC report on climate change. It highlights the continued human induced impact on climate change, along with the immediate need for widespread action to reduce greenhouse gas emissions. A number of sobering headline statements were published which include:

• “It is unequivocal that human influence has warmed the atmosphere, ocean and land. Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred”
• “From a physical science perspective, limiting human-induced global warming to a specific level requires limiting cumulative CO2 emissions, reaching at least net zero CO2 emissions, along with strong reductions in other greenhouse gas emissions. Strong, rapid and sustained reductions in CH4 emissions would also limit the warming effect resulting from declining aerosol pollution and would improve air quality.”

The full report can be found here.

There is more that can be done by UK businesses to support in reducing our combined carbon impact. This month’s newsletter highlights some of the legislation in place to encourage and reward companies for managing their carbon emissions. These include the CDP window now being open, whereby companies can disclose their environmental impact, and ESOS now being fully underway to encourage energy efficiency. Updates are also provided on the UK ETS system for reporting, an extension to Climate Change Agreements and the current market carbon price.

CDP

It’s that time of year again and the CDP Online Response System (ORS) portal is now online!

The deadline for companies to submit their questionnaires to be eligible for scoring is 26th July 2023.

CDP 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 questionnaires where companies can disclose their impact on areas including climate change, water security and deforestation. The popularity for this type of reporting is growing annually with CDP stating:

“Record-breaking year for environmental disclosure as nearly 20,000 organizations disclose through CDP in 2022 – a 38% increase since 2021”

More information on CDP can be found here.

UK Emission Trading Scheme

Operators in UK ETS currently use the ‘Emissions Trading System Workflow Automation Program’ (ETSWAP) for admin relating to permits and submitting reports. This system is to be replaced by a new ‘Manage your UK Emissions Trading Scheme Reporting Service’ (METS). The planned roll out of METS is a phased approach with UK ETS installations operators moving to the system from summer 2023. It is understood that not all information will be moved to the new system, therefore operators are advised to download data held on ETSWAP and keep it safe in their own records. It is expected that ETSWAP will be closed around 14th July 2023, therefore operators should aim to download their data well in advance of this. More detail can be found here.

Carbon Price

A review of the trends and current costs associated with the UK ETS allowance show that prices are currently tracking at around £63/tonne. This is a continued downward trend for cost per tonne of carbon dioxide since it spiked at the start of February. The EU allowance appears to be a different story, fluctuating at around €90/tonne. Further details on the UK Emissions Trading Scheme markets can be found here.

Climate Change Agreements (CCA)

The Climate Change Agreement scheme for Target period 5 ended on 31st December 2023. A new ‘Target Period 6’ extension was announced during the government’s Budget on 15th March 2023. There will be no changes to the eligibility criteria for the extension and all current operators who continue to meet the existing eligibility will maintain their benefits of participating in the scheme. It is understood that Target Period 6 will cover the period from 1 January 2024 to 31 December 2024. This is to allow time for the Department for Energy Security & Net Zero to put the necessary legislation in place before reporting begins. As a result, it creates a “gap year” for measuring performance from Target Period 5 ending on 31st December 2022, however the government announced that the “intention is that the targets for TP6 will reflect an ongoing trajectory of improvement following the end of TP5”. Consultation is also still ongoing for a reform of the CCA scheme following the TP6 extension. More detail on Target Period 6 can be found here.

NB From April 2023 the Climate Change Levy rate for gas is to be increase to £00672/kWh but to compensate for this this CCA discount rate increases from 86% to 88%. It is therefore important that the relevant PP10 and PP11 forms are submitted to the HMRC and suppliers. Electricity rates will remain the same.

Energy Savings Opportunity Scheme (ESOS)

It is now only 7-months until the ESOS phase 3 compliance deadline. It is compulsory for all UK businesses that fall within the classification of a large undertaking to comply with the legislation. The process is now in full swing with organisations booking in their site audits and carrying out data collection. It is crucial that plenty of time is left to ensure that this process can be carried out, therefore it is recommended that a lead assessor is appointed a.s.a.p. to support with meeting the deadline of 5th December 2023.

Full guidance on how to comply with ESOS can be found here.