The Government has a goal of reducing business administrative burden by 25% yet it continues to load new energy use reporting requirements on manufacturers, without clear benefits for energy reduction or decarbonisation. High energy cost in the UK means that energy intensive chemical manufacturers are already pulling every lever to preserve their competitiveness through investment in energy efficiency. Moreover, they already comply with existing commitments under multiple regulatory schemes. The Government must act to streamline existing energy reporting requirements, targeting a single route to compliance and a coherent policy framework that enables industrial decarbonisation. In the meantime, energy intensive industry should be exempted from the Energy Savings Opportunity Scheme (ESOS).
The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy auditing scheme for organisations in the UK that meet the criteria of a ‘large undertaking’. The scheme is sector agnostic, applying across the economy. Organisations that qualify for ESOS must carry out ESOS-compliant audits every four years, assessing energy used by their buildings, industrial processes and transport. A central tenet of the scheme is that by mandating director-level sign-off of the audit report, ESOS raises awareness of potential energy cost savings within a business, improving the likelihood of investment in energy efficiency.
The CIA recognises that ESOS could be an effective driver of investment in sectors that do not typically scrutinise their energy use. However, high energy cost in the UK means that energy intensive chemical manufacturers are already pulling every lever to preserve their competitiveness through investment in energy efficiency. Energy use is factored into decision-making at the highest level, without the need for additional and expanding ESOS requirements, which take time and resource away from project implementation.
With its broad application, the scheme also does not account for the fact that energy intensive manufacturers already report their energy under a number of other commitments. ESOS arose from the UK’s implementation of the EU Energy Efficiency Directive (2012/27/EU) in 2014 and came in on top of the UK’s domestic industrial energy efficiency scheme, the Climate Change Agreements (CCA) scheme. It also applies on top of requirements to report energy and emissions under Streamlined Energy and Carbon Reporting (SECR), the UK Emissions Trading Scheme (UK ETS) and the Environmental Permitting Regulations. The administrative burden of complying with all of these duplicative and overlapping schemes is unwarranted.
The current patchwork of energy and emission reporting requirements is not an effective way of monitoring or incentivising industrial decarbonisation. It duplicates efforts, creates confusion, complicates investment decisions, and even leads to perverse incentives. Instead, industry needs effective, joined-up action from the Government and a robust framework for measuring and rewarding progress. Layers of slightly varying and poorly coordinated reporting requirements only divert energy managers from project delivery.
But rather than streamline reporting requirements for industry, the Government has been ramping them up. ESOS requirements were expanded for Phase 4 (2023-2026), introducing new obligations to report progress against ‘action plan commitments’ and provide explanations where action plan commitments were not met. From the start of Phase 5 (2027-2031), the Government intends to expand the scheme further, to cover net zero as well as energy efficiency.
For the chemical industry these developments confer no additional benefit over and above existing schemes, either in the form of new data for the Government, or incentives for industrial decarbonisation. Action plan commitments remain a priority in and of themselves, whilst our emission abatement technologies – electrification, hydrogen, biomass and CCUS – remain unavailable or uneconomic in the UK. Scheme expansion does however make compliance more time consuming and more expensive for UK manufacturers, whilst any opportunities identified will struggle to progress without effective public support for net zero investment.
Rather than a lack of awareness of energy saving opportunities, the UK chemical sector’s barriers to investment in energy efficiency and decarbonisation pertain chiefly to high energy prices, high policy costs and internal competition for resources. Multinational businesses invest across a global portfolio and the UK offers an uncompetitive return on investment. The situation is made more difficult by uncertainty in policy and regulation, a lack of access to external capital and funding, the high cost of RD&D of new technology, and the long lifetime of existing equipment.
The Climate Change Committee have outlined a pathway to net zero for the chemical sector, in which energy efficiency provides a minor role. This is partly because many of the low-hanging fruit have already been picked but it is also because chemistry is inherently energy intensive. Physical laws dictate the energy needed to break chemical bonds and catalyse reactions. We will continue to improve our energy efficiency to compete but to decarbonise we need access to secure, reliable and economic sources of clean energy.
The Government has a goal of reducing business administrative burden by 25%. A good place to start would be to streamline existing energy and carbon reporting requirements, targeting a single route to compliance and a coherent policy framework that empowers industry to reduce energy use and emissions. This means action on high energy prices and policy costs, and clear policy direction on the role of foundation industries throughout the energy transition. For now, a simple step would be to exempt sites from ESOS if they already report under the CCA scheme or UK ETS.
