Energy and carbon compliance in 2023: what you need to know

The compliance landscape for UK businesses, especially those over a certain size, is continually evolving. Here’s what you need to be aware of in 2023.

The first TCFD reports become due

Over 1,300 of the UK’s largest companies and financial institutions are obliged to report on their climate-related financial information in a way that aligns with guidelines from the Task Force on Climate-Related Financial Disclosures (TCFD). For businesses in scope, the reporting is for accounting periods starting 6 April 2022 onwards. Businesses should already be gathering information for their climate reporting with a view to submitting it in 2023 or early 2024. To check whether or not your business is in scope, or for more details on what is required, read our free guide to TCFD reporting.

Stronger criteria for climate plans

The regulatory direction of travel on net zero is clear: businesses are increasingly expected to have a realistic plan. At COP26 in November 2021, then-Chancellor Rishi Sunak announced that the government would be making it compulsory for listed companies and financial institutions to publish net zero transition plans. In April 2022, the government launched its Transition Plan Taskforce to develop the criteria for an acceptable plan. In November 2022 the taskforce published a draft disclosure framework and implementation guidance. Consultation closes on these draft documents on 28 February 2023. At the moment, there is some flexibility in what details companies disclose of their net zero plans in their TCFD-aligned climate reporting. But as 2023 progresses, we can expect much more robust criteria for what will be accepted as a net zero transition plan. Businesses should start reviewing their plans now and assessing whether they are really in line with TCFD best practice.

Stronger ESOS requirements

In July 2022, the government confirmed plans to strengthen the Energy Savings Opportunity Scheme (ESOS). Measures include a reduction of the de minimise exemption from 10% to 5%, the addition of an energy intensity metric and the mandatory collection of additional data. These all apply in the current phase of ESOS, Phase 3. Further changes are coming. We already know that Phase 4 will require businesses to explain why they are not implementing the measures suggested in their reports. The recently published independent review of net zero suggests going further by making it mandatory to take up their ESOS report recommendations. It also suggests expanding the number of businesses in scope. We do not yet know exactly how ESOS will be strengthened in future, or exactly when changes will come in, but it is clear that the government wants businesses to take more action on their recommendations. The Environment Agency, which administers ESOS, told the Energy Advice Hub that they hope to receive full updates on all possible changes from the Department of Business, Energy and Industrial Strategy (BEIS) in “early 2023”.

More action on buildings

The current Minimum Energy Efficiency Standards (MEES) dictate that landlords of non-domestic private properties must hold an Energy Performance Certificate (EPC) rating of E or above before granting a new lease. From 1 April 2023, this will apply to existing leases, too. MEES regulations are likely to get stricter, requiring a minimum EPC requirement of B by 2030, and an interim milestone of EPC C by 2027. The Net Zero Review points out that the government is not on track to deliver its commitments around buildings decarbonisation and makes suggestions for fixing this, including:

• Legislating for all new non-domestic buildings to have an energy performance rating of B or above from 2025;
• Legislating for all existing non-domestic buildings to be retrofitted to a minimum standard of EPC B by 2030;
• Removing the need to secure planning permission for rooftop solar;
• Actually making rooftop solar the standard for all new buildings, possibly starting with public buildings.

The government has also announced new proposals for lighting products sold in the UK to meet higher energy performance standards. The proposed regulations could come into force in late 2023. The Net Zero Review. These include:

More support – hopefully

The Net Zero Review acknowledges that the net zero transition carries costs for businesses and suggests offering more support in helping UK plc to decarbonise. This might mean following Germany’s example and creating something similar to their proposed €177 billion Climate and Transformation Fund, which would go towards retrofitting buildings and supporting industry. The regulatory environment will be key to supporting businesses to take the right pathway. This will involve making sure that there are adequate incentives to decarbonise, including from the tax system. It should also mean working on the complex problem of carbon markets, expanding the UK Emissions Trading Scheme while still keeping the UK competitive. It will be vital to ensure that the expansion of the ETS does not create an incentive for businesses to move to countries with weaker regulations – so-called “carbon leakage”. 2023 looks set to be an interesting year in the sphere of energy and carbon regulations for UK businesses. Keep an eye on the Energy Advice Hub for the latest news, explainers and advice.