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The cost of not following legislation; £1.4m

For decades the importance of dealing with energy and energy management has not been at the forefront of most businesses. Much of this is because business believed energy was a fixed cost, resulting in a lack of understanding what to do, how, when and sometimes even why.

Today, we can see worldwide that this is changing. Both business and countries are seeing the importance in tackling their energy profile, improve their impact on the environment and society as a whole.

Focusing more narrowly on the UK and I have highlighted this in my August SECR article. The energy legislation landscape has only kicked off in the last 20 years and created some progressive schemes.

The majority of these schemes are managed by the Environment Agency (EA). A non-departmental public body (NDPB). The schemes it enforces are a small part of its overall responsibilities as a NDPD but the penalties it imposes within these schemes can be hard-hitting to businesses who fail to comply.

To take an example, the Energy Saving Opportunity Scheme (ESOS), which came into force in 2014, is currently in Phase 2. It is one of the schemes enforced by the EA and has been the subject of much scrutiny.

ESOS in a nutshell

ESOS applies to any UK organisation (participant) that matches the following criteria:

  1. It has 250 or more staff.
  2. It has less than 250 staff but has an annual turnover exceeding €50m and a balance sheet exceeding €43m.
  3. It is part of a corporate group which includes a large undertaking (as defined by (1) or (2), above).

ESOS requires participants to review their energy consumption within three (3) specific areas: Industrial Processes, Transport, Buildings.

Then participants must measure all their energy use for a continuous twelve-month period, undertake audits covering all their main areas of energy consumption and must report their compliance to the Environment Agency by the compliance date of that phase.

The weak link in the process of ESOS is that organisations do not have to act on their findings. Only report them to the EA by the compliance date(s).

Compliance (Phase) PeriodQualification DateCompliance PeriodCompliance Date
1

31st December 2014

From 17th July 2014 to 5th December 20155th December 2015
231st December 2018From 6th December 2015 to 5th December 20195th December 2019
331st December 2022From 6th December 2019 to 5th December 20235th December 2023
431st December 2026From 6th December 2023 to 5th December 20275th December 2027

At ESOS’s launch in 2014, participants only had one year to comply with Phase 1 and the fines outlined in the scheme for not complying can add up. The fines go from £5,000 to £50,000 and have the capability to have several stacked-on top of each other; depending on which non-compliance ESOS regulation an organisation fails to comply with.

It should be noted that there were many concerns within and out of the industry on whether the EA would follow through with the fines. Many believed they would not, simply because there has been a lacklustre approach to them in the past.

Phase 1 finished and many organisations had not complied with ESOS. Again, this falls back to the lack of understanding on what, how, when and why. This led the EA in issuing notices of failure to comply in 2016/17. The majority of these businesses found ESOS Lead Assessors and complied.

On October 11th 2018. The Environment Agency released their ESOS newsletter with a link to the full Phase 1 compliance list and its Phase 1 civil penalties. This document outlined the civil penalties for ESOS, the Carbon Reduction Commitment (CRC), EU ETS, EU ETS Aviation and Climate Change Agreements (CCA’s).

SchemeTotal Civil Penalties (£)
EU ETS£776,025.99
EU ETS Aviation£377,190.24
ESOS£157,770
CRC£116,200
CCA£565
Total£1,427,751.23

The fines come in at over £1.4 million. ESOS civil penalties stand at £157,770.

So where does it currently stand?

ESOS Phase 2 is well underway and the compliance date of 5th December 2019 is just a little over a year away. It’s advised anyone participating in Phase 2 that has not already started gathering the relevant data and arranging audits to do so as soon as possible.

It is also advised that if an organisation is required to participate in any of the above schemes to seek expert industry advice on how to go about doing this.

The energy management and legislation landscape is becoming more mainstream every year. It is starting to play an important role on the day to day and financial running of organisations.

There is no reason not to place energy management into your business as usual and create long term strategies to manage this.

Note: CRC has been abolished and ends in 2019. CCL rates are set to increase significantly to offset this. This will result in an average increase in CCL costs, per site, for 2019/20 of 56% more than 17/18.

https://www.2ea.co.uk/Climate-Change-Levy-White-Paper---An-Analysis-of-2017_18-vs-2019_20-CCL-Rates.html 

Content Discussion

Matt Chester's picture
Matt Chester on October 15, 2018

This trend is one that provides me with the most reason to be optimistic-- businesses and people can largely ignore what some may consider a moral imperative to address the impact of their energy use on society, the environment, and more, but they cannot and will not ignore the impact it has on their bottom line. While it would be more uplifting to see action come as a result of 'wanting to do the right thing,' the economics will always lead the conversation and impact change

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