This is an article from Paul Collins, environmental lawyer and senior associate at law firm Ashfords – all observations expressed below are his own: Green Retail World does not offer businesses legal advice directly.
The article first appeared in Commerce & Industry
As retailers strive to reduce their energy bills and carbon emissions, there are important related legal obligations to be met to avoid incurring large penalties and potential reputational damage.
Most retailers are required to comply with a number of climate change schemes, including the Energy Savings Opportunity Scheme (ESOS) and the Fluorinated Greenhouse Gases regime (F-gas regime).
Some have entered into voluntary Climate Change Agreements (CCAs) with the Environment Agency (EA) and benefit from significant reductions in their energy bills through a discount of the Climate Change Levy.
Recently, there have been some important developments in the schemes to be aware of.
ESOS
ESOS is a mandatory energy assessment scheme for organisations that, on 31 December 2022, employed 250 or more people, or had an annual turnover in excess of £44 million, and an annual balance sheet total in excess of £38 million.
The EA has been issuing legal enforcement notices and warnings of proposed penalties to organisations who they believe qualify for ESOS but have not notified their compliance.
The deadline for submitting a notification of compliance for phase 3 of ESOS was 5 June 2024. Organisations qualifying for ESOS must achieve compliance or they could face a penalty of up to £50,000.
F-gas regime
The Fluorinated Greenhouse Gases Regulations apply to anyone who uses or services equipment that contains HFCs, perfluorocarbons or sulphur hexafluoride.
If you use the following equipment, you must check it for F-gas leaks. That could range from at least once every 12 months to every three months, and fitting an automatic leak detection system:
- Stationary refrigeration equipment
- Stationary air conditioning equipment
- Refrigeration units of refrigerated trucks and trailers
- Stationary heat pumps
- Electrical switch gear.
If you find a leak during a check, you must repair it as soon as possible and repeat the test within a month.
Recently, a business was issued with a penalty of £75,000 for failing to have a leak detection system in operation and another was penalised £10,500 for failing to keep records of fluorinated gas.
CCA scheme
CCAs are voluntary agreements where eligible business sectors and businesses are able to benefit from a significant reduction of the Climate Change Levy, provided they meet specific energy reduction targets.
Phase three of the CCA scheme is due to start on 1 January 2026 and the retail sector trade associations are currently in negotiations with the UK Government to agree the new energy reduction targets that will apply to the sector and all CCA participants from 1 January 2026.
The new five-year scheme will require CCA holders to update their reporting practices and change their business practices to meet stricter energy efficiency targets.
Where a CCA holder fails to meet its energy reduction targets, they may still able to claim a discount of the CCL by paying a ‘buy-out fee’ to the EA. The buy-out fee is calculated by the EA and is based on each tonne of carbon dioxide equivalent by which an participant falls short of meeting their target. Currently that is £25/tCO2e but will be increasing to £37/tCO2e.
If the buy-out fee is not paid on time, the EA may issue a notice decertifying the facility and the participant would no longer be eligible to claim CCL discount.
Increased enforcement of the climate change schemes
The EA is increasingly active in enforcing all of these regimes but there are steps that can be taken to reduce your exposure to legal action and potentially very large penalties, for example a fine in the region of £1 million has been imposed for failing to comply with the F-gas regime.
If you’ve been served with an enforcement notice, or have received notice of a civil penalty, it’s important to act quickly. If you make representations to the EA or appeal the EA’s penalty, it may be possible to have it reduced or cancelled.
Paul Collins is an environmental lawyer. He worked for the EA for over a decade until 2024, acting as the lead lawyer for the EA enforcing the climate change regimes. He represented the EA in more than 150 appeals against civil penalties, in the First-tier Tribunal and the Upper Tribunal. Therefore he’s uniquely placed to advise clients in relation to regime compliance, steps to take in response to enforcement action, and prospects of success when making representations/bringing appeals.
[image credit: Ashfords]
