From CRC to SECR: emissions and energy reporting obligations for UK companies

The CRC Energy Efficiency Scheme comes to an end in 2019. From April, UK companies will be required to report on emissions and energy efficiency through Streamlined Energy and Carbon Reporting (SECR).

27 November 2018

The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) will come to an end in 2019, and its requirements for submissions of reports on emissions and energy consumption and for purchase of allowances in respect of these emissions will cease in that year.

CRC as a regime is not being replaced. However, consultations were carried out by the government in 2015-2016 and 2017-2018 in respect of its revenue-generating and reporting aspects.

Companies should be aware of the transition away from CRC, the scope of obligations under the new Streamlined Energy and Carbon Reporting (SECR) regime, and that SECR will apply to a wider range of companies than CRC, imposing new obligations that will require appropriate systems and processes.

The new regulations and SECR

While abolition of the CRC is to be made revenue neutral through changes to the Climate Change Levy, the Government intends to continue - indeed to expand upon – related reporting requirements through the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, which were made on 6 November 2018 and which come into force on 1 April 2019. 

These regulations introduce SECR, which imposes new obligations on some companies (and certain LLPs) to report on emissions and energy use through their directors’ reports in their annual reports filed at Companies House (or, in the case of LLPs, bespoke energy and carbon reports).

The new reporting requirements

The content of reports required under SECR includes:

  • annual quantity of Greenhouse Gas (GHG) Emissions from combustion of gas and transport fuels
  • annual quantity of GHG emissions resulting from purchase of electricity for business use
  • an intensity metric (a ratio expressing emissions in relation to a quantifiable factor – e.g. revenue or employees)
  • total UK energy use, or total global energy use for quoted companies
  • a narrative commentary on energy efficiency action taken in that financial year.

Qualifying Criteria, Exemptions, and Limits on Reporting

All quoted companies will, as a starting point, qualify for SECR. In order to determine whether they qualify for SECR, unquoted companies and LLPs will need to consider whether they are 'large' (as for a range of other regimes).

'Large' companies and 'large' LLPs are those that have two or more of the following within a financial year:

  • More than 250 employees
  • An annual turnover of greater than £36m
  • An annual balance sheet greater than £18m

There are statutory procedures that apply where a company has fluctuated above or below the size criteria. Such companies will need to review their records for previous years, and may require legal advice as to their status under SECR.

As a general point, reporting is only required where it is practical for the company/LLP to obtain relevant information. However, reports must contain an explanation where data has not been provided on grounds of impracticality.

Businesses consuming 40 MWh or less during the relevant financial year are exempt from SECR. It is worth noting that this is significantly lower than the 6,000 MWh threshold under CRC.

There is also an exemption where the statements would be seriously prejudicial to the businesses interest, although guidance has not yet been provided on what 'serious prejudice' means in this context.

Effect on businesses

SECR will apply in respect of financial years beginning on or after 1 April 2019, and businesses will need to take steps to ensure compliance in advance.

Companies should first look at their energy usage to determine whether they exceed the 40MWh threshold, and should also give thought as to whether the other exemptions might apply.

Further detailed guidance is expected in April 2019 and we shall keep progress of SECR under review in the meantime.

SECR will potentially capture a significant number of businesses that have not previously been subject to mandatory reporting requirements of this kind. All businesses that are affected should ensure adequate reporting and data-gathering processes are in place ahead of April 2019, and that company boards are adequately briefed to ensure smooth sign-off processes for the directors’ report. Businesses may also wish to consider potential exemptions available, and might need to have regard to the size criteria, which carries its own complications (as discussed above).

Our environment team has experience of tackling similar issues under other regimes (including CRC and the Energy Savings Opportunities Scheme) and advising corporates with complex structures which can find implementing these regimes particularly challenging. We are also able to advise on transitioning away from CRC to compliance under the new regime and to provide assistance to businesses that have to address these requirements for the first time.

This article was written by Simon Tilling, Partner, and Stephen Lavington, Associate in our environment team.

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Simon Tilling Partner

  • Environment
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  • Energy, Power and Utilities

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