Upcoming changes you need to prepare for in 2022

In recent years, we’ve seen a great deal of change within the energy industry – and as our journey to net-zero accelerates, it looks like 2022 is set to be another year of change, challenges and opportunities for energy and sustainability professionals. 

We know that businesses are keen to stay ahead of the curve when it comes to the energy market, so we’ve asked our energy experts to share all of the key changes that businesses need to be aware of in 2022. Here’s what they told us…

Net-zero will remain a high priority

We saw the Government announce some crucial net-zero policies and commitments in 2021, with events like COP26 and the publication of the long-awaited Net-Zero Strategy providing some much-needed clarity for businesses. But with a number of further net-zero strategies, policies and reports expected in 2022, it seems that mapping out the next steps to net-zero will be just as much of a priority for the UK Government (and as a result, for UK businesses) in the new year.

We’re currently in the middle of the first Global Stocktake (GST), in which countries that have signed up to the Paris Agreement take stock of its implementation and assess the world’s collective progress towards achieving its goals. With the GST set to run from November 2021-November 2023, it’s crucial for the UK to be seen to be continuing to take ambitious action against climate change in 2022.

2022 is also the last year of the UK’s third carbon budget period (2018-2022). According to the Climate Change Committee (CCC), we have outperformed our third carbon budget – which required us to reduce emissions by 37% by 2020 (based on 1990 levels). However, the CCC has warned that we are not on track to achieve our fourth carbon budget, which will require the UK to reduce its carbon emissions by 51% by 2025 (based on 1990 levels).

And it’s likely that the Government’s Third Climate Change Risk Assessment, which is expected to be published in January, will further enhance the Government’s net-zero efforts in 2022. The risk assessment will provide an updated insight into the key risks and opportunities that climate change poses to the UK, as well as the Government’s views on how to tackle the former and seize the latter. 

These events should provide the Government with plenty of motivation to deliver on some of the new commitments they made last year – such as publishing a 2030 Strategic Framework in 2022, which they promised to do at COP26. This Framework will set out a clear vision and priorities to guide UK international climate and nature action over the coming decade, with the aim of delivering against the climate and biodiversity commitments outlined in the Integrated Review. 

Within the Net-Zero Strategy, the Government also announced that they would be publishing a new Biomass Strategy in 2022, as part of their drive for the UK to become a ‘leader in low-carbon fuel production’. This Strategy will outline how sustainable biomass can be best used across the economy to help achieve net-zero, including to produce low carbon fuels. It’s likely to be particularly useful for businesses in energy-intensive sectors, where electrification may not be viable for every organisation.

The energy price crisis will continue

After a year of extremely high energy prices, many businesses will be hoping for some relief in 2022 – but unfortunately, prospects for a sharp drop seem unlikely. With gas and electricity wholesale prices continuing to rise, and a growing number of suppliers going bust, the energy price crisis looks to be far from over. Recent research by Cornwall Insight has shown that domestic energy bills could rise by as much as 30% in 2022, and with no price cap in place to protect business energy customers, many organisations could face spiralling costs next year unless they take action to reduce their consumption. 

UK and EU carbon prices are also rising, in part due to rising wholesale prices brought on by the European gas supply crunch. With Christmas also set to create a longer than normal break between carbon allowance auctions, the UK carbon price has risen to record highs in recent months, with the monthly average carbon prices in September, October and November all higher than the December trigger price of £52.88. 

This had triggered the Cost Containment Mechanism (CCM), which enables the UK ETS Authority to intervene when prices are elevated for a sustained period. On the 14^th of December, the UK ETS Authority announced that it would not be intervening, without ruling out future action if triggers were breached. As a result of this decision UK carbon has seen further gains, breezing past all-time highs set in September this month.

Businesses that use a lot of gas should also be aware that the Government is set to announce its decision on shifting environmental levies on electricity to gas in 2022. Currently, 23% of the cost of electricity is made up of environmental and social obligation costs, such as the Renewable Obligation and the Feed in Tariff, while these levies make up less than 2% of gas costs. This imbalance means that there’s little incentive for businesses or individuals to electrify their processes – e.g. switch from a gas boiler to electric heat pumps – as the running costs can be higher. 

The Government therefore carried out a consultation on rebalancing these levies to shift costs from electricity to gas bills over the next decade, and the results will be published next year. If they do decide to shift environmental costs over to gas, this is likely to cause gas prices to rise even further over the next ten years. It’s therefore crucial for businesses that use significant volumes of gas in their operations to stay up-to-date with the outcome of this consultation.  

New obligations for businesses

The Government is also expected to announce the outcome of their consultation on strengthening the Energy Savings Opportunity Scheme (ESOS) in the new year. They are seeking to improve the uptake of energy efficiency measures and increase the benefits for participating businesses. In the consultation, they posed several options, including increasing the standardisation of reporting requirements to improve the quality of ESOS audits, including a net-zero element within audits, and requiring participants to publicly disclose their high-level recommendations. 

They are also considering extending ESOS to include medium-sized businesses, and making it mandatory for businesses to act on their ESOS recommendations. Businesses should therefore look out for the outcome of this consultation, as those who aren’t currently affected by ESOS could find that they are required to comply, and those that are already involved in ESOS may find their requirements have increased. 

After proposals on making climate-related disclosures mandatory for publicly quoted companies, large private companies and the largest Limited Liability Partnerships (LLPs) received widespread support recently, the Government will soon be setting out regulations to bring this into force. If passed, these regulations oblige affected companies to make climate-related disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations within their strategic reports from 6th April 2022. With this deadline just a few months away, businesses that fall under the proposed eligibility criteria should be preparing to make these disclosures now.

Manufacturers will also face a new plastic packaging tax from April 2022, which is designed to encourage greater use of recycled plastic rather than virgin (new) plastic. Those importing or manufacturing plastic packaging that contains less than 30% recycled plastic will be charged a tax set at £200 per tonne, a move that is estimated to lead to carbon savings of nearly 200,000 tonnes of CO2 emissions. These businesses will therefore need to factor these additional costs into their plans or switch to packaging with a higher proportion of recycled plastic before April.