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Cutting emissions in business and industry

The recent publishing of the Government's Clean Growth Strategy (the Strategy) shows that the largest percentage of UK emissions comes from business and industry. Specifically, the heating of buildings and industry creates 32% of national emissions. The Strategy highlights that efficiency of buildings is a top priority before 2030 with more ambitious goals such as carbon capture and decarbonisation of industry being considered for the future.

Minimum Energy Efficiency Standards Regulations (MEES) state that it will be illegal to grant a new lease to a tenant in a non-domestic property with an EPC rating of F or G from 1 April 2018 and this will apply to existing lettings from 1 April 2023 (where the non-domestic property is subject to the EPC Regulations). Further government guidance issued in February 2017 makes it clear that, subject to certain requirements and exemptions:

  1. from 1 April 2018, landlords of non-domestic private rented properties may not grant a tenancy to new or existing tenants if their property has an EPC rating of band F or G (shown on a valid Energy Performance Certificate for the property); and
  2. from 1 April 2023, landlords must not continue letting a non-domestic property which is already let if that property has an EPC rating of band F or G.

MEES will be enforced by compliance notices being served on landlords and fines of up to £150,000 will be payable together with non-compliance notices being published.

It is still unclear whether MEES - an obligation under the EU Energy Performance of Buildings Directive 2010 and subsequently the Energy Act 2011 - will be kept following the UK's exit from the European Union. MEES are not mentioned by name in the Strategy, so we may be seeing a slightly different building energy efficiency policy post-Brexit. Despite the uncertainty, it would be wise for landlords to review their property portfolios to see if they meet the required EPC rating before the UK has withdrawn from the EU.

To speed up the adoption of energy efficiency measures in buildings the Government are setting aside funds to pump into research with the aim of driving down the costs of implementing such measures. The long term goal is very much focused on Carbon Capture, Use and Storage (CCUS) as well as the decarbonisation of heavy industry. For industry in the energy sector in particular, CCUS would be a big step forward as it prevents CO2 from entering the atmosphere by capturing and storing it in under geological formations. As it stands, this technology is still in the relatively early stages, not to mention hugely expensive. There are very few examples of long term storage of CO2 as most CCUS technology is being utilised by the oil industry in which CO2 is injected into oil wells to improve recovery.

Energy intensive industries will also need to prepare for increases to the Climate Change Levy (CCL) in 2019. This is in line with the Government's promise in 2016 to scrap the CRC Energy Efficiency Scheme whilst simultaneously raising the CCL to compensate for the loss of income. Introduced in 2001, the CCL is charged on energy supplied to an end user and rates are set to further increase with the objective of encouraging businesses to become more energy efficient and reduce emissions. Energy intensive users may enter into a Climate Change Agreement with the Environment Agency to qualify for a percentage discount (the level depending on the type of fuel consumed) to the CCL, but overall government action continues to nudge business to improve energy efficiency to save cost and ultimately reduce UK emissions.

This article was written by Charles Scrivens and Emma Warren.

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