How will Brexit affect ESOS and other carbon reporting schemes?

Brexit continues to dominate the UK political landscape, and the overriding sense is that firms are seeking clarity to enable effective planning.

Of course, the dilemma here is obvious; no one really knows exactly what the future might hold. But on business carbon and energy reporting, and other elements of energy policy, like carbon pricing, we can take an intelligent guess at the future.

UK leaves, but maintains the majority of EU-based energy policy and law

In this scenario, which arguably is the most likely and most welcome for UK businesses, the UK will leave the EU, but maintain the standards of carbon reporting already established under overarching EU environmental laws and the UK Climate Change Act.

Arguably, all that will happen is existing law would eventually need to be fully transposed into new UK law, but there need be no practical changes for reporting requirements on the day Brexit happens. And there would be no rush to totally rewrite the law either.

The logic to date has been that The Withdrawal Bill, debated earlier this year in the Commons, cuts off the source of European Union law in the UK by repealing the European Communities Act 1972.

This means that after the Brexit date, EU institutions can’t make laws affecting the UK any more, with the majority of existing EU law simply becoming domestic UK law.

For many firms out there, this result could well be the best option, as to a degree business as usual would recommence.

What does this mean for UK carbon reporting schemes?

ESOS: The Energy Savings Opportunity Scheme was established by UK government to implement the EU Energy Efficiency Directive. Tacitly, the government has a big problem with immediately replacing existing EU law with new. There simply isn’t the resource to quickly rewrite, plan, put in front of Parliament and enact brand new laws, from which schemes like ESOS were originally were born. Therefore, for the foreseeable future, this will remain unchanged.

SECR: The new Streamlined Energy and Carbon Reporting framework which was announced last year is a mandatory UK scheme to replace the CRC Energy Efficiency Scheme when it closes at the end of the 2018-2019 compliance year. It is not linked to EU directives and will therefore be unaffected by Brexit.

If mandatory carbon reporting remains business as usual, are we worrying enough about the overall situation?

For some commentators, elements like ESOS or SECR barely scratch the surface compared with deeper concerns about energy and Brexit.

Durham University has written a briefing on on energy priorities and the Brexit negotiations, which is cited in The European Union Select Committee Sub-Committee on EU Energy and Environment report on ‘Brexit: energy security’.

Durham’s analysis makes for interesting and at times worrying reading. For a start, it argues that a long, drawn out Brexit process with little clarity on the direction of energy policy will have a significant impact on investments from the private sector, which are desperately needed if we are to ensure the UK energy system is resilient and fit for the future.

Durham also argues Brexit presents an opportunity for an increased UK policy emphasis on energy efficiency in buildings, industrial machines and electrical products.

Durham says significant reductions in energy demand have already been achieved through EU directives on energy efficiency; it is essential we continue and strengthen this commitment.

Thankfully, there appears little appetite in government circles to backtrack on such low carbon efforts. The concerning damage is coming from a paralysis in investment and a freeze on normal business while firms sit tight, awaiting the final transition.

Finally, Durham says Brexit seriously threatens to undermine a UK smart energy system. Research and technology developments in smart energy rely on stable partnership within the EU and the enhanced policy uncertainty triggered by the process is a further barrier to developing the smart system.

This affects schemes such as ESOS and SECR; plans are in place to allow smart energy to be offset in firms’ reporting in future. But if Brexit damages the smart energy transition, there will be no offsetting to report.

Firms’ likely obligations post Brexit

The overriding likelihood is that ESOS and SECR won’t see any change from their existing plans and status on the day Brexit happens.

That’s good news for firms. One can’t be certain, but objectively this result seems the most logical.

What’s worrying is how Brexit is affecting energy investment, policy and futurism. Back in November 2015, National Grid asked Vivid Economics (VE) to provide an assessment of the impact of leaving the EU on the UK’s energy sector.

VE found that overall impacts of Brexit on the energy sector are likely to be negative. Any potential benefits of Brexit are likely to be limited, given that the UK is committed to decarbonisation and air quality targets equal to or greater than EU requirements anyway.

VE said the increase in the cost of investment due to the uncertainty arising from Brexit negotiations could be significant, given the UK is undertaking a historic level of investment in energy infrastructure.

So, the takeaway is this. ESOS, SECR or overall low carbon law are very unlikely to be derailed. But the process of decarbonisation could be, and with investment concerns, elements like the price of energy or reliability of the grid might well be the bigger business headache.