The Energy Savings Opportunity Scheme (ESOS) and the Streamlined Energy and Carbon Reporting scheme (SECR) have coexisted for over two years, with separate but closely related aims. Now the government is consulting on wide-ranging changes to ESOS which could not only strengthen the scheme, but bring it into closer alignment with SECR.
Disclosure requirement for ESOS
ESOS requires participant businesses to audit energy use across all their UK sites and identify opportunities for energy efficiency savings. This information is then submitted to the regulator (which varies depending on which part of the UK you’re in) and used to check compliance. There is no obligation to make any of this information public.
Scheme administrator the Environment Agency publishes ESOS datasets, but these simply tell the public which organisations have announced that they are compliant. They do not include any energy consumption data, and the claims to be compliant are not even verified before the datasets are published. Under the changes raised in the ESOS consultation, there would be a new requirement to publicly disclose energy data and any progress made in energy efficiency measures. This would bring the scheme more in line with SECR, where participants already have to make their energy consumption public.
Widening ESOS participation
Businesses in scope of ESOS meet the definition of a “large undertaking”, which means employing 250 or more people or having a turnover above €50 million and a balance over €43 million. This is bigger than the Companies Act definition of “large” used by SECR, which requires two of the three following criteria:
- More than 250 employees;
- Turnover above £36m (about €42.3m);
- Balance sheet above £18m (about €21.2m).
Because businesses have to be bigger to fall in scope of ESOS, there are more businesses in scope of SECR, but not ESOS, than the other way round. (The vice-versa exceptions tend to be overseas businesses with registered UK establishments, which are completely exempt from SECR.)
The government acknowledges there is no good reason for ESOS to have a higher size threshold than SECR. It was originally because ESOS was based on an EU directive, but this no longer applies after Brexit. So the consultation suggests bringing the ESOS qualification thresholds in line with those of SECR. This would mean thousands of businesses newly falling in scope of ESOS.
Including emissions and intensity ratios
Since it was introduced in 2014, ESOS has been focused on encouraging companies to reduce energy consumption, and does not look at greenhouse gas emissions. Perhaps the biggest potential change raised in the new ESOS consultation is a suggested requirement to calculate emissions and assess the potential for decarbonising the business. If this suggestion is adopted, it would be the first time any UK government scheme has mandated businesses to come up with a plan for decarbonising their operations. This goes further than SECR, which asks businesses to measure and report on their emissions but does not require any attempt to reduce them.
The consultation also suggests that ESOS reports begin including energy intensity ratios; that is, energy use as compared to other metrics. Intensity ratios can be more helpful than absolute figures to help businesses demonstrate progress; for example, a growing pub chain might have rising energy use but successfully show that the amount of energy per pint poured is actually going down.
SECR already includes intensity ratios for emissions, so this is another way in which the two schemes are being brought into line with each other. It is likely that if this change comes in, businesses under ESOS will be allowed to choose the metrics which are most meaningful to them, just as they are under SECR.
Time for action
The alignment between the two schemes means that if a business falls in scope of ESOS as a result of the changes, it will be able to draw on the same energy data it gathered for SECR. The consultation mentions multiple times that it is trying to avoid creating unnecessary paperwork. But it is time to stop thinking of ESOS, and indeed SECR, as “paperwork”, or as a compliance issue. The overall aim of the proposed ESOS changes is to get large businesses to seriously focus on their energy consumption and greenhouse gas emissions. This means, perhaps for the first time, coming up with a workable strategy for reaching net zero.
Of course, businesses will need to familiarise themselves with the letter of the ESOS regulations before their Phase 3 reference period begins. But just as urgent is the need to think very hard about the carbon footprint of the business, and perhaps make some tough strategic decisions.