Environment Agency softens its approach to Energy Savings Opportunity Scheme (ESOS) compliance

The Environment Agency (EA) has published guidance on its approach to enforcement of ESOS (the Enforcement Guidance). ESOS currently requires organisations to undertake energy audits and confirm full compliance to the EA by 5 December 2015. The Enforcement Guidance now allows some flexibility in that the EA will "normally" not take enforcement action where organisations miss the December deadline, provided they are compliant by 29 January 2016. Requirements for organisations consuming less than 40,000kWh per year have also been scaled back. Organisations will still be expected to make genuine efforts to meet the ESOS requirements by 5 December 2015, and must inform the EA by that date if they are unable to do so.  This bulletin provides a summary and for more information, the Herbert Smith Freehills guide to ESOS is available here.

1. EA reacting to growing concerns about compliance with ESOS

2. Whilst the guidance clarifies the EA's likely approach it is not an extension of time

3. Guidance deals with more than just deadlines

4. Also of note

5. Further information

1. EA reacting to growing concerns about compliance with ESOS

ESOS is a mandatory energy assessment scheme which was established in July 2014 in order to implement the requirements of the EU Energy Efficiency Directive. It requires large UK undertakings and their corporate groups to conduct an energy consumption audit every four years. This must be verified by a registered independent ESOS assessor and compliance then reported to the EA by 5 December 2015. Our detailed guide aims to assist organisations in determining whether they are in scope and what needs to be done by the relevant deadline.

There have been growing concerns about the practical difficulties organisations are having in complying with the scheme in the required timeframe. A recent survey suggested that nearly a third of organisations either have not commenced their ESOS assessments or are still in the process of appointing an assessor. Low levels of awareness and the complexity of establishing whether organisations are within the scope of the regime (particularly for those with complicated corporate structures) have likely contributed to this.

The EA's approach in the Enforcement Guidance is therefore a practical concession. The guidance states that, provided organisations notify full compliance by 29 January 2016, the EA will not take any enforcement action for overdue notification. Even then, if an organisation notifies the EA on 29 January 2016 that it has completed its energy audit, but has been unable to secure a review by a lead assessor (presumably because of lack of availability), then the EA will normally issue an enforcement notice, requiring this to be rectified within three months. Furthermore, companies seeking to use ISO 50001 certification to demonstrate compliance with ESOS (as one of the alternative routes to compliance) will have until 30 June 2016 to confirm compliance.

2. Whilst the guidance clarifies the EA's likely approach it is not an extension of time

Some commentators have interpreted this as an extension to the deadline for compliance. This is not the case. The deadline for compliance in the ESOS regulations has not been changed and so the Enforcement Guidance only gives comfort as to the EA's likely approach should an organisation breach this. The guidance is not binding and EA policy is subject to change. Furthermore the Enforcement Guidance, and subsequent statements by the EA, make it clear that organisations must still strive to meet the legislated deadline. Organisations which do not make genuine attempts to comply with ESOS by the deadline still risk enforcement action. In this light, where an organisation is not compliant by 5 December 2015, it must still notify the EA by 5 December 2015 of the reasons why it is not compliant and the date by which it expects to complete its ESOS assessment.

3. Guidance deals with more than just deadlines

The Enforcement Guidance confirms that the EA's general approach to enforcement and sanctions will apply to its approach to ESOS, including taking into account public interest factors such as intent of those in breach when considering what action to take.

Interestingly, it also states that the EA will not enforce some of the more onerous requirements of ESOS against organisations which consume less than 40,000kWh per year. These organisations will not need to carry out a full ESOS audit or appoint a lead assessor, but rather must consider and document opportunities to reduce their energy consumption. It is not clear what level of analysis must be done to satisfy this. Further, there is no legislative basis for this approach and so the risk of a change in EA policy will remain.

4. Also of note:

• the EA generally states that it will normally use enforcement notices to bring organisations into compliance, and that these will usually allow for a 3 month rectification period. Civil penalties will only be used in the "most serious cases";
• there is reference throughout the Enforcement Guidance to the first compliance phase. The EA is likely to take a stricter approach in future years, when it will expect organisations to be more familiar with ESOS; and
• the EA states that it will in many instances impose lower penalties (for the first compliance phase) than the maximum set out in the legislation.

5. Further information

Those wishing to read more about ESOS and its requirements generally should refer to the Herbert Smith Freehills guide, available here.

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