What Is The Difference Between These Emissions?
Can A Company Be Exempt From Reporting?
The Future Of Streamlined Energy & Carbon Reporting
Over the past few years, it has become more important than ever before to be conscious of our carbon emissions. This sea change has applied both to private individuals and to organisations of all
sizes, and it will be on your mind whether you are managing director, financial director or energy manager at your company.
You might not know whether your company is compliant with new government rules and regulations, and SECR, a recently introduced scheme. Being compliant with SECR could not only help your business or reduce your overall carbon footprint, but it can also benefit your business financially.
Whether or not you have heard of the SECR scheme, considering the growing concern and action around the climate crisis, we need to look in more detail at how engaging with SECR could benefit
both you and the planet.
What Is SECR?
SECR stands for the Streamlined Energy and Carbon Reporting scheme. The scheme was introduced in April 2019, replacing the Carbon Reduction Commitment (CRC) or CRC Energy Efficiency scheme. CRC was a mandatory scheme in the United Kingdom which had to be complied with if your organisation was large and classed as “energy-intensive”.
SECR is a slightly broader scheme in scope, and it seeks organisations to report energy use and carbon emissions. These reports will make up a part of their annual financial accounts, giving an overview of what they are using and how it could potentially be impacting finances.
Who Will Qualify For SECR?
Not every organisation falls under the mandatory SECR scheme, however. To qualify, you will need to be a large quoted or unquoted company. You must also meet two out of three requirements. This could be having a turnover that is more than £36 million per year, a balance sheet that is more than £18 million, or 250 employees for either your single company or your company group.
Why Is SECR Important?
It can be easy to feel as though something might not apply to you and you can struggle to find the value in it, especially if it is mandatory. However, the SECR scheme is a high value undertaking for all large businesses, providing you with the benefits of carbon and energy reporting.
As it stands, the more businesses that become aware of these factors, the more businesses will be able to see areas where the implementation of energy efficiency measures might be necessary and beneficial. Providing benefits that you will see in both the financial economy of your own company and in the environment generally, SECR can help you to reduce costs and improve productivity. This is all with the main goal of reducing carbon emissions and minimising your carbon footprint.
What Needs To Be Reported?
There is no one specific answer to what you need to report under the SECR scheme, as this is highly dependent on whether you have a quoted or unquoted company.
For quoted companies, it is necessary to report global greenhouse gas emissions in Scope 1 and 2, and your underlying energy consumption in kWh. This will then be used to calculate your esteemed greenhouse gas emissions. You should include your previous year’s energy, emissions and intensity ratio (this is how you define your emissions data so that it relates to a business metric).
As a quoted company, you will also need to include the proportion of your energy use and emissions as they relate to your UK operations, inclusive of the offshore area.
As an unquoted company or LLP, you will need to report both your UK and UK offshore area greenhouse gas emissions (Scope 1 and 2) and some Scope 3 emissions as they relate to business
travel activities. Again, you will need to report your underlying energy consumption in kWh and your priority year’s energy, emissions, and intensity ratio – though you will not be able to do this in your first year.
Both quoted and unquoted companies must have at least one intensity ratio, including the methodology you have used in the calculation of disclosure, and the principal measures you’re
taking. Principal measures relate to the energy efficiency actions you have taken in the relevant financial year.
What Is The Differences Between These Emissions?
Scope 1
If you are new to the SECR scheme, you may be wondering what the different scope levels mean. It is straightforward to understand, though it may take some consideration.
Scope 1 emissions are greenhouse gas emissions released on an organisation’s site or from their vehicles. More accurately they are CO2e emissions that come from sources owned or controlled by an organisation. Typically, these are emissions generated by gas boilers and owned or leased cars, vans & lorries.
Scope 1 emissions are divided into 4 areas:
- Stationary Combustion
- Mobile Combustion
- Fugitive Emissions
- Process Emissions
Scope 2
Scope 2 Emissions are the greenhouse gases released into the atmosphere from the consumption of purchased electricity, steam, heat, and cooling. Although the CO2e emissions result from an
organisation’s activities, they occur at sources it doesn’t own or control. As a result, they are indirect emissions. They are to be included in the Streamlined Energy and Carbon Emissions Reporting
requirements.
Utilities that can cause scope 2 emissions include:
-
- Electricity
- Heating
- Cooling
- Steam
Scope 3
Scope 3 emissions, also known as value chain emissions or third-party emissions, are the most complex as they are emissions which arise from sources connected to a business rather than from the business itself. These can pose significant challenges for those looking to set net zero targets, as they’re known to be responsible for up to 70% of a company’s carbon footprint.
Examples of causes of scope 3 emissions include:
- Suppliers providing raw materials to the business
- Transport services used for a company’s logistics
- Waste disposal and recycling services
- Employees commuting to work
When Does This Need To Be Reported?
Even if you are happy to adhere to SECR standards and can see the benefits of the scheme, you may struggle when it comes to knowing when this information will need to be reported. Simply put, you will be required to disclose your Scope 1 and Scope 2 emissions (and possible Scope 3 emissions) annually. This will be done on your annual financial accounts and will include last year’s figures following Phase 1.
As well as reporting the figures, you will need to include one intensity ratio (possibly more) made to show a baseline to target reductions. This can help to show what you have achieved and where you can improve during the following year.
You will also need to provide details as to what energy efficiency strategies and actions you have undertaken during this time, including a methodology and plan to explain these steps.
Can A Company Be Exempt From Reporting?
There is a way to be exempted from SECR reporting. You may be exempt if your large quoted or unquoted company is able to demonstrate a low energy usage. This would mean that you would need to present proof that your usage is 40MWh or less over the set reporting period. However, even if you fall under this exemption, you will still need to include in your report that you are a low energy user. Businesses can voluntarily comply with SECR regulations.
The Future Of Streamlined Energy & Carbon Reporting
While SECR is currently only mandatory for larger companies, businesses of all sizes should be prepared for that to change in the future, and for the scope of SECR to change overall. Tackling carbon emissions and climate change is an ongoing and evolving process, which could result in SECR widening its scope.
Since it replaced CRC in April 2019, SECR is something you may have been aware of for some time, whether it directly impacts you yet or not. Currently, the government is making assessments around what the focus should be next when it comes to SECR, exploring the possibility of implementing substantial changes to the scheme by 2023. That doesn’t give you much time to prepare for what might be next.
You can expect SECR requirements to become more ambitious and for expectations to rise, especially if you are finding SECR compliance easy. Complying with SECR will help to reduce costs, which in hand will help benefit every business especially with the energy crisis and the current cost of living crisis in the UK.
Moving forward, the idea of a Net Zero future is being seriously explored – meaning that the government is looking at strategies that will balance the amount of carbon we put into the atmosphere
versus the amount of carbon we remove from it.
With the current global goal being to prevent further and progressively worse damage to the climate, governments around the world are attempting to reduce carbon emissions by roughly 45% by 2030 (based on levels in 2010), with the ambition to achieve Net Zero by 2050.
While not every change to SECR is public knowledge yet, you should keep the compulsory requirement for reporting on Scope 3 emissions. Currently, SECR has been focusing on Scope 1 and Scope 2 emissions. So even though these requirements have not been updated yet, if you start exceeding the minimum expectations now, you will be in a good position when SECR expands its mandatory requirements.
Why Work With Energy Impact?
New rules and regulations are always going to come with new challenges. Understanding whether SECR applies to you and what you will need to report under it is easier when you work with the experts.
Energy Impact has a wide and varied knowledge in the industry, and we can help you face the energy crisis and the associated Net Zero goals with confidence and clarity.
We aim to be part of the solution for these issues, and we have supported hundreds of clients to hit energy performance goals and keep their costs low. Energy efficiency doesn’t have to be difficult when you have the right team on your side.
We have completed over 50 SECR assessments from 2019 to 2021 and going forward we hope to help even more organisations achieve SECR compliance and make a real difference in their carbon emissions.
If you want to make sure that you are SECR compliant, meeting and beating the minimum requirements laid out, get in touch. You can book your energy consultation and find out more about
how Energy Impact could help you.
