Cut regulation red tape and let businesses drive energy reduction

Jo Butlin -

For businesses, complying with energy regulation is largely viewed as a costly and time consuming tick box exercise with little connection to energy strategy. Jo Butlin, managing director of Utilyx, argues that the start of a new parliament will be a good time for politicians to simplify energy legislation and let businesses take the lead.

Now the official election campaign has kicked off, the main political parties will, no doubt, have a lot to say about energy. We are all too aware that now is a particularly interesting time for the sector, with a close eye being kept on what will happen with oil prices, but businesses would also like some focus on energy regulation compliance.

The fact is complying with energy legislation has become more and more onerous for businesses in recent years. The latest energy saving regulation, the Energy Savings and Opportunities Scheme (ESOS), which will become obligatory for large companies in December this year, is an example of this.

Whilst ESOS is an opportunity for businesses to reduce energy use and save money if identified measures are implemented, it is largely viewed by business as a duplication of existing schemes. Specifically, ESOS has similar documentation requirements to the Carbon Reduction Commitment (CRC) Energy Efficiency scheme and Mandatory Carbon Reporting (MCR).

It is this ‘layering’ of policies that is making energy compliance overly complicated for businesses.  An idea which has been voiced to me a number of times by senior energy professionals is a ‘one in, one out’ approach; simplifying the regulatory agenda and cutting through the mire of conflicting and contradictory policies.

There is also growing scepticism amongst businesses and organisations as to whether energy compliance policies actually meet the environmental objectives they are designed to address. When the CRC Energy Efficiency scheme was first introduced, the annually published ‘league table’ of the top carbon reducers was designed to drive natural competition between companies and force a focus on carbon reduction. In reality, it became almost immediately apparent that the scheme’s design was very complex which negated its effectiveness. Whilst CRC reporting is still a requirement, it is now effectively a burden rather than an agent for behavioural change. Last year the league table was published with barely a whimper in the market

I believe the nub of the problem is that whilst business’ approach to energy sustainability has evolved significantly over recent years, government policy has not kept pace with this. Energy management is no longer just about meeting green targets but also protecting reputation, reducing energy consumption and above all else making cost savings to improve the bottom line. Business common sense dictates this, not government legislation. So energy regulation compliance is automatically downgraded to a form filling, tick box – and often costly - exercise.

For example many of the schemes from ESOS to MCR will require that an organisation conducts an energy audit leading to potential duplication of effort as the requirements of each differ. But businesses today are getting more and more sophisticated about reducing energy consumption such that audits are just the starting point. Business is ahead of the game in so many ways.

At the same time the government has been more and more interventionist in the operation of the energy market. The central driver for this has been the introduction of regulation to support Electricity Market Reform (EMR). EMR has taken some time to come into force. The bones of EMR were developed when Labour was last in power and the Coalition has developed the policy and implemented the legislation.

economy – have come under increased scrutiny. A worldwide crash in oil prices, cheap gas as Far East demand slows and a surge of US shale supplies have created a completely different climate. It seems that market forces and the world economy move too quickly for energy policy to be directed from central government.

So the bigger question is whether this experience exposes the need for a different model? One that is able to respond quickly to market changes and to world developments. We may be an island but energy is part of a world economy.

An approach which enables market forces to drive investment, low prices and innovation, without being held back by the slow wheels of policy development, would certainly win a few votes in British industry.