Carbon emissions trading and reporting schemes
Guidance on government schemes requiring the reporting of business carbon emissions and emissions trading schemes.
The issue of climate change is stimulating action by government and industry to reduce environmental impact of business activities. Legislation is in place to encourage businesses become more energy efficient and reduce emissions.
These interventions include industry-wide ‘cap and trade’ frameworks to gradually reduce emissions in line with long term targets and international commitments. Reporting requirements for certain business types and industry sectors provide an annual impetus to take actions to cut emissions and reduce energy use.
This guide will help you to understand about the UK ETS scheme and if your business still has obligations under the EU ETS scheme. It will also help you understand if your business is within scope of the Streamlined Energy and Carbon Reporting, the Energy Savings Opportunity Scheme, industry-specific Climate Change Agreements or the Carbon Offsetting and Reduction Scheme for International Aviation.
UK Emissions Trading Scheme (UK ETS)
What businesses must do to meet their obligations if they are covered by the UK Emissions Trading System.
Emissions trading schemes work by setting a cap on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme and then decreases that cap over time. Within the cap, participants receive free allowances and/or buy emission allowances at auction or on the secondary market which they can trade with other participants as needed.
What is the UK ETS?
A UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS on 1 January 2021. The UK Government and devolved administrations established the scheme to increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses.
The UK ETS applies to energy intensive industries, the power generation sector and aviation. Activities in scope of the UK ETS are listed in Schedule 1 (aviation) and Schedule 2 (installations) of the .
Northern Ireland electricity generators remain in the EU ETS under the Northern Ireland Protocol - find out more about the EU ETS.
Find out more about and about how to .
How to comply with the UK ETS
The UK ETS applies to regulated activities carried out at installations.
Operators of installations who carry out regulated activities must have either a greenhouse gas emissions (GHGE) permit or a hospital or small emitter (HSE) permit. You must apply for a permit before you begin your regulated activities. This is unless the installation has ultra-small emitter status for the 2021 to 2025 allocation period, in which case you will not require a permit.
Your business must meet targets set by the UK ETS by either cutting your carbon emissions or by trading allowances.
If you do not comply with the UK ETS requirements your regulator may take enforcement action which could result in a civil penalty.
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European Union Emissions Trading System (EU ETS)
Which businesses are covered by the EU Emissions Trading System and what they must do to meet their obligations.
Emissions trading is a key policy measure being used to help the European Union to meet their emissions reduction targets.
What is the EU ETS?
The European Union Emissions Trading Scheme (EU ETS) is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one.
The EU ETS can affect businesses from energy-intensive sectors such as the energy industry and certain manufacturers.
Under the Northern Ireland Protocol, electricity generators in NI remain within the EU ETS.
For other sectors within scope, the United Kingdom Emissions Trading Scheme (UK ETS) has replaced the EU ETS – find out more about your obligations under the UK ETS.
How to comply with the EU ETS
To comply with the EU ETS, your installation must legally hand over (surrender) enough allowances to cover your emissions from the previous year. Allowances are issued every February for the following year.
The deadline for surrendering allowances is 30 April every year. Failure to comply is met with financial penalties - €100 for every tonne of CO2 for which you fail to surrender allowances - plus you have to make up for the shortfall the following year.
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Streamlined Energy and Carbon Reporting (SECR)
How UK quoted companies can report on their global energy use and emissions data in their annual Directors’ Report.
Companies which are listed on the United Kingdom Stock Exchange have particular requirements for reporting on energy use and carbon emissions.
What is Streamlined Energy and Carbon Reporting?
The Streamlined Energy and Carbon Reporting (SECR) regulations require all UK quoted companies to report on their global energy use in addition to greenhouse gas emissions in their annual Directors’ Report.
Large unquoted companies and limited liability partnerships are also required to disclose their annual energy use and greenhouse gas emissions (GHG) and related information.
All other companies are encouraged to report similarly, although this remains voluntary.
SECR is a successor scheme to the Carbon Reduction Commitment (CRC) which ended in 2019, although the requirements are not identical.
How to comply with Streamlined Energy and Carbon Reporting
Companies in scope need to include SECR information in their Directors’ Report, or an Energy and Carbon Report for LLPs. This is for financial years beginning from 1 April 2019.
Your company needs to report on:
- your total energy use
- Scope 1 and Scope 2 emissions, with the methodology used
- energy efficiency measures taken in the last year
- data on previous year (after first year reporting)
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Energy Savings Opportunity Scheme (ESOS)
Your large business or organisation may have mandatory energy assessment requirements to help improve energy efficiency.
If you are a large business or organisation, or are part of a larger business grouping, you may have responsibilities for assessing your energy usage on a four-year cycle and find ways to become more energy efficient.
What is the Energy Savings Opportunity Scheme?
The Energy Savings Opportunity Scheme (ESOS) scheme requires large organisations in the United Kingdom to assess their energy usage and find new ways to save energy.
Large organisations include:
- a corporate body or partnership
- an unincorporated association carrying on a trade or business, with or without a view to profit
For the third compliance period (2019-2023) large organisations in scope are those which at 31 December 2022:
- employ 250 or more people
- have an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million
How to comply with the Energy Savings Opportunity Scheme
If you qualify for ESOS and your organisation is fully covered by ISO 50001, you do not need to carry out an ESOS assessment. You just need to notify the Environment Agency that you’re compliant with ESOS.
If you qualify for ESOS, but your organisation is not fully covered by ISO 50001, you need to carry out an ESOS assessment. The assessment helps you work out what your organisation needs to do to comply with the ESOS regulations.
The assessment takes into account energy directly covered by Display Energy Certificates (DECs), Green Deal Assessments (GDAs), or ISO 50001.
For your ESOS assessment, you need to:
- calculate your total energy consumption
- identify your areas of significant energy consumption
- appoint a lead assessor - you can
- notify the Environment Agency
- keep records
The Environment Agency is the UK scheme administrator, and the Northern Ireland Environment Agency (NIEA) is the regulator for organisations whose registered office is in NI – for more information on ESOS you can email ipri@daera-ni.gov.uk.
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Climate change agreements (CCA)
How climate change agreements work, which businesses are eligible and which sector associations hold a CCA.
Some sectors and business types are eligible for agreements on reducing energy use and carbon emissions in return for tax breaks.
What are Climate Change Agreements?
Climate Change Agreements (CCAs) are voluntary agreements made between United Kingdom industry and the Environment Agency to reduce energy use and carbon dioxide (CO2) emissions. In return, operators receive a discount on the Climate Change Levy (CCL), a tax added to electricity and fuel bills.
Find out how to:
- register, keep records, calculate what you owe and report Climate Change Levy
- pay your Climate Change Levy
- access the manuals, forms and reference materials for Climate Change Levy
CCAs are available for a wide range of industry sectors from major energy-intensive processes such as chemicals and paper to supermarkets and agricultural businesses such as intensive pig and poultry farming.
There are two types of CCA:
- umbrella agreements, negotiated with industry sectors
- underlying agreements, held by operators of site with targets for their type derived from umbrella agreements, and managed by sector associations
How to comply with Climate Change Agreements
The current CCA scheme started in April 2013 and will run until 31 March 2025.
An operator that has a CCA must measure and report its energy use and carbon emissions against agreed targets over two year target periods up to the end of 2022.
If an operator has more than one eligible facility in the same sector it can hold an individual CCA for each facility or choose to group them together under one CCA. Where facilities are grouped under one CCA the target is then shared across the grouped facilities.
Once a facility, or group of facilities, is included in a CCA, it is referred to as a target unit.
If the operator’s target unit meets its targets at the end of each reporting period, the facilities continue to be eligible for the discount on the CCL.
The reduced rate certificate lists facilities entitled to claim a discount on the CCL and is updated on the last working day of each month. You can .
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Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)
Find out if your business has obligations to reduce emissions from your international aviation operations.
If you operate international flights from Northern Ireland you may have obligations to measure your CO2 emissions and offset an amount which cannot be reduced through existing methods.
What is CORSIA?
CORSIA is the Carbon Offsetting and Reduction Scheme for International Aviation. International governments have adopted CORSIA to stabilise net CO2 emissions from international aviation from 2021.
If a flight takes off from a United Kingdom airport and lands in an airport outside of the European Economic Area (EEA), this flight is subject to CORSIA. Internal flights within the UK and to the EEA are subject to the UK Emissions Trading Scheme.
CORSIA obligations came into force on 26 May 2021 for UK administered aeroplane operators.
How to comply with CORSIA
Under CORSIA, you will need to monitor and report any international flights attributed to you.
Your broad responsibilities include:
- setting up an Emissions Trading Scheme Workflow Automation Project (ETSWAP) account
- applying for an emissions monitoring plan
- completing tasks in your CORSIA annual cycle by any specified deadlines
- monitoring your emissions
- preparing an annual emissions report
- submitting your verified annual emissions report
If your registered office or your place of residence is in NI, your regulator is Northern Ireland Environment Agency (NIEA) – you can contact NIEA about CORSIA by emailing emissions.trading@daera-ni.gov.uk.
If you think you may be an aeroplane operator with obligations under the CORSIA, you must contact NIEA as soon as possible.
You must submit an emissions monitoring plan application within three months of becoming an aeroplane operator. If you miss this deadline, you should contact NIEA straight away.
There may be a penalty if you do not apply for an emissions monitoring plan on time.
If you are an aeroplane operator, you must monitor your emissions from all international flights for each scheme year, and report your verified emissions in the following scheme year. A scheme year runs from 1 January to 31 December.
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