Business energy efficiency reporting – goodbye CRC, hello SECR

After abolishing the CRC Energy Efficiency Scheme, the government has made regulations requiring additional reporting by quoted companies, large unquoted companies and large LLPs on greenhouse gas emissions, energy consumption and energy efficiency action

On 1 October 2018, the regulations abolishing the CRC Energy Efficiency Scheme (CRC Scheme) after the end of the 2018-19 compliance year came into force, although there will be ongoing compliance obligations, some of which last until March 2025. The revenue lost from the sale of emission allowances will be replaced by increasing the main rates of climate change levy from April 2019. To replace the reporting aspects of the CRC Scheme, additional requirements for quoted companies, large unquoted companies and large LLPs to report on greenhouse gas emissions, energy consumption and energy efficiency action will come into effect on 1 April 2019.

The CRC Scheme - they think it’s all over, but it isn’t yet

The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 provides that there will be no third phase of the CRC Scheme (which was to apply to emissions from 1 April 2019 to 31 March 2024). The 1 April 2017 to 31 March 2018 qualification period and registration deadline of 31 January 2019 are therefore now no longer relevant.

Although there will be no more phases in the CRC Scheme, both current and former participants need to be aware that certain obligations will survive the end of the current phase (and that the Environment Agency will retain its enforcement powers in relation to those obligations). These are:

• Participants in the current phase must submit an annual report by 31 July 2019, and buy and surrender sufficient allowances by 31 October 2019;
• The Environment Agency will be able to impose penalties requiring the purchase and surrender of additional allowances until 28 February 2022, and to impose penalties of blocking access to the CRC Registry or of publication of a participant's details on the CRC Registry until 31 March 2022;
• Participants in the first phase must maintain their records until 31 March 2021;
• Participants in the second phase must inform the Environment Agency about any change of address and maintain their records until 31 March 2025.

The new Streamlined Energy and Carbon Reporting Scheme

There is a new acronym in the business energy efficiency lexicon to replace the reporting aspects of the CRC Scheme – SECR (Streamlined Energy and Carbon Reporting). Following consultation in 2017-18, on 6 November 2018 the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 were made. The regulations amend the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 to require additional reporting on greenhouse gas emissions, energy consumption and energy efficiency action by quoted companies, large unquoted companies and large LLPs.

The new SECR system combines elements of the CRC Scheme and existing mandatory greenhouse gas (GHG) reporting. These include:

• It will apply across the UK;Reporting will be done through annual reports;
• the reporting framework will continue to apply to all quoted companies and will apply to large (as defined by the Companies Act 2006) UK incorporated unquoted companies (which satisfy at least two of the following three criteria within a financial year - at least 250 employees, an annual turnover greater than £36 million and an annual balance sheet greater than £18 million);
• It will not apply to public sector organisations;
• Quoted companies registered in the UK will still be required to disclose, in their directors’ reports, energy use from activities for which the company is directly responsible, including the combustion of fuel and the operation of any facility (‘Scope 1’ emissions) and from purchases of electricity, heat, steam or cooling for their own use (‘Scope 2’ emissions), and an ‘intensity metric’. As a new requirement, they will also have to describe the principal measures (if any) taken to increase their energy efficiency. Reporting indirect emissions not included in Scope 2 that occur in the value chain of the reporting entity (‘Scope 3’ emissions) will remain voluntary. They will also be required, where practical, to report on their global energy use;
• Large unquoted companies will be required to disclose in their directors’ reports their UK energy use and associated Scope 1 and Scope 2 emissions, an intensity metric and action taken to increase energy efficiency.
• Large LLPs will be required to prepare an equivalent report to the directors' report (an energy and carbon report) for each financial year. The contents requirements of the energy and carbon report mirror the disclosure requirements that apply to large unquoted companies. If the LLP is a parent LLP and the members of the LLP prepare group accounts, the energy and carbon report must be a consolidated (group) report.

Exemptions are available if:

• the additional reporting requirements would be seriously prejudicial to the interests of a company or LLP;
• the company or LLP has used a small amount of energy (40,000 kilowatt hours or less) in the relevant financial year; or
• the company or LLP is included in group reports (subject to certain conditions).

The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 will come into force on 1 April 2019 and have effect in respect of financial years beginning on or after 1 April 2019. They can be found here. Detailed guidance is expected to be published by January 2019.