About this guidance

This guidance is published by the Environment Agency as the UK scheme administrator for ESOS , on behalf of all the UK regulators which are:

Environment Agency for organisations whose registered office is in England

Natural Resources Wales for organisations whose registered office is in Wales

Northern Ireland Environment Agency for organisations whose registered office is in Northern Ireland

Scottish Environment Protection Agency for organisations whose registered office is in Scotland

Secretary of State for Department for Energy Security and Net Zero for organisations whose activities consist wholly or mainly of offshore activities

The Environment Agency as scheme administrator is responsible for guidance, communications, helpdesk and collection of notifications of compliance throughout the UK . The regulators are individually responsible for checking compliance and enforcement activities in relation to qualifying participants. The Department for Energy Security and Net Zero is responsible for developing ESOS policy.

Contact information is provided in Appendix D.

Stages required for completion of ESOS

1. Identify if your organisation qualifies for ESOS .

2. If it does not, no further action is required, although you can still carry out an ESOS assessment on a voluntary basis. If it does, then:

identify all parts of your organisation – section 2

identify the deadlines for completing the ESOS assessment – section 3

assessment – section 3 identify your total energy consumption – section 4

identify your areas of significant energy consumption (at least 95% of your total energy consumption) – section 5

calculate your energy intensity ratios – section 6

consider your route to compliance – section 7

carry out an audit on all your significant energy consumption and identify energy savings opportunities – section 8 and/or

use an alternative compliance route – section 9

complete the ESOS report and share details with group undertakings where relevant – section 10

report and share details with group undertakings where relevant – section 10 get the report signed off by board level directors – section 11

submit a compliance notification to the Environment Agency through the online ESOS notification system, which contains the required compliance information about your organisation and your ESOS assessment– section 11

The deadline for submitting a compliance notification for the current (third) compliance period is 5 June 2024.

3. Following submission of the compliance notification:

complete an ESOS action plan by the action plan deadline of 5 December 2024 – section 12

action plan by the action plan deadline of – section 12 complete 2 annual progress updates in the 2 years following the action plan deadline – section 13

1. What ESOS is and who it applies to

ESOS is an energy assessment and energy saving scheme and is established by the Energy Savings Opportunity Scheme Regulations 2014 ( ESOS Regulations). The ESOS Regulations have been substantially amended in 2023, through The Energy Savings Opportunity Scheme (Amendment) Regulations 2023, to make changes to the scheme. Information on relevant legislation can be found in Appendix D.

The scheme applies to large undertakings and groups containing large undertakings in the UK . An undertaking, as defined in the Companies Act 2006, is:

a corporate body or partnership

an unincorporated association carrying on a trade or business, with or without a view to profit

The definition of an undertaking includes partnerships, limited liability partnerships, joint ventures and in many cases charities.

The scheme has resulted in estimated annual efficiency energy savings of 1.65 TWh from buildings,1.51 TWh savings for industrial processes, and 0.52 TWh of fuel efficiency savings across the ESOS population. (Data is from the ESOS post implementation review).

The changes to the scheme being introduced from the third compliance period onwards are estimated to lead to an additional 28 TWh across all participants over 2024 to 2037, which equates to an estimated £1.12 billion in energy bill savings for participants over that period. (Data is from the Energy Security Bill factsheet: Powers to strengthen the energy savings opportunity scheme).

ESOS is separate to the Streamlined Energy and Carbon Reporting ( SECR ) framework which came into force on 1 April 2019 through The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Many of the organisations in scope of ESOS will also have SECR obligations which apply to all quoted companies, large unquoted companies and large limited liability partnerships incorporated in the UK and require disclosure in annual reports of specified energy, emissions and energy efficiency action taken. Systems in place to collect and audit energy consumption to meet ESOS obligations and progress with implementation of ESOS recommendations can help organisations to meet their SECR requirements.

If after reading this guide you are still unsure about particular aspects of how to comply with ESOS then you should contact the Environment Agency ESOS helpdesk esos@environment-agency.gov.uk

1.1 Who qualifies for ESOS

You must take part in ESOS if your organisation, or any UK undertakings in your organisation’s group, qualifies as a large undertaking on the qualification date.

The qualification date for the third compliance period is 31 December 2022.

A large undertaking is any UK undertaking that meets either one or both of the following conditions:

It employs 250 or more people. For a UK registered undertaking, this includes all employees contracted to the undertaking either in the UK or abroad, irrespective of the number of hours for which they are employed. For ESOS purposes, the definition of an employee for a non- UK registered undertaking with a UK registered establishment is someone directly contracted to the undertaking who is subject to income tax in the UK . It has an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million.

For more information on the details of these thresholds, including rules around organisations which have recently grown or shrunk, see sections 1.4 to 1.6.

Changes to the qualification thresholds in the third compliance period For the first and second compliance periods the financial qualification thresholds were set in relation to euros. After the UK left the EU , the 2014 ESOS regulations were amended to set the qualification threshold in £ sterling. For the qualification date for the second compliance period (31 December 2018) the qualification thresholds were as below. A large undertaking was any UK undertaking that met either one or both of the conditions: it employed 250 or more people

it had an annual turnover in excess of €50 million and an annual balance sheet total in excess of €43 million Where accounts were quoted in pound sterling then participants were directed to use the Bank of England exchange rate between the Euro and pound sterling at close of business on the qualification date.

Undertakings that can qualify for ESOS

Examples include:

limited companies

public companies

trusts

partnerships

private equity companies or limited liability partnerships

unincorporated associations

not-for-profit bodies (many larger charities will be a corporate body and as such are considered to be an undertaking)

universities which get more than half their funding from private sources.

care homes that do not qualify as public bodies

Higher education institutions ( HEIs )

Public bodies are generally excluded from the scope of ESOS , as defined in section 1.2. However public body status in the HEI sector does not universally apply. This reflects different funding levels from public and private sources. ESOS has been implemented on the basis that it applies to HEIs that self-declare as private sector and meet the other requirement triggering ESOS qualification.

1.2 Who does not qualify for ESOS

You are not required to participate in ESOS if:

your organisation is defined as a public body (contracting authority) in: Regulation 3 of the Public Contracts Regulations 2006 in England, Wales and Northern Ireland for the first compliance period, replaced by Regulation 2(1) of the Public Contracts Regulations 2015 for the second and subsequent compliance periods Regulation 3 of the Public Contracts (Scotland) Regulations 2012 in Scotland for the first compliance period, replaced by Regulation 2(1) of the Public Contracts (Scotland) Regulations 2015 for the second and subsequent compliance periods

your undertaking is subject to an insolvency procedure

you do not meet the qualification criteria outlined in section 1.1

Where you are part of a corporate group and only parts of the group fall into these categories then the rest of the group will be required to participate in ESOS if they qualify.

The Public Contracts Regulations broadly state that organisations are public bodies if:

(a) they are established for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character

(b) they have legal personality, and

(c) they have any of the following characteristics:

(i) they are financed, for the most part, by the State, regional or local authorities, or by other bodies governed by public law

(ii) they are subject to management supervision by those authorities or bodies, or

(iii) they have an administrative, managerial or supervisory board, more than half of whose members are appointed by the State, regional or local authorities, or by other bodies governed by public law

In other words, the undertaking must satisfy the criteria described in (a) and (b) and either (c) (i), (ii) or (iii) in order for it to be classed as a public body (contracting authority) excluded from the scope of ESOS .

Whether an undertaking meets all of the requirements to be classed as a public body is not necessarily straightforward to determine. If you are not sure we recommend you obtain specialist legal or tax advice. For example, many undertakings provide products and services for a fee on a regular basis based on a tender application and these arrangements often develop into commercial trading with consequential tax implications. The Public Contracts Regulations only apply to your undertaking if you award public contracts.

The Public Contracts Regulations define an economic operator as a contractor, a supplier or a service provider who sought, who seek or who would have wished to be a person to whom a public services contract, public works contract or public supply contract was awarded. As such if the undertaking is under contract to a contracting authority it ‘may’ not be classed as a contracting authority as it would not meet the criteria in (a) above in that there is most likely to be an industrial or commercial character associated with the undertaking.

If you claim public body status you must explain how you comply with the Public Contracts Regulations when you submit your compliance notification. When you notify online that you do not qualify for ESOS you must also keep proof in an evidence pack in case of future enquiries by your regulator.

If a large undertaking only voluntarily complies with the Public Contracts Regulations it must still participate in ESOS .

Where a private organisation is carrying out work as a subcontractor for an organisation subject to the Public Contracts Regulations they will still need to assess their qualification in the normal way. If they qualify they must participate in the scheme and include energy supplies which are deemed to be their responsibility (see section 4.1 for details).

1.2.1 Overseas organisations with UK energy supplies but no qualifying UK establishment

Where an overseas organisation has UK energy supplies but no UK establishment that employs at least 250 people in the UK it will not need to participate in ESOS unless any other part of its global corporate group activities in the UK meets the ESOS qualifying criteria.

Even if you do not qualify for ESOS , for example if you are an SME , you may wish to undertake an ESOS assessment to identify ways to reduce energy consumption and to demonstrate your commitment to energy efficiency. Organisations which wish to do so are able to voluntarily notify that they have complied with the requirements of ESOS through the ESOS compliance notification process, and can then have their details published by the Environment Agency as part of the list of ESOS compliant organisations.

1.2.2 Zero energy supplies

If you have zero energy supplies (for example, you exceed the financial thresholds to participate in the scheme but have no physical assets or employees using energy), you must still participate in the scheme and submit a compliance notification to confirm that although your organisation qualifies for the scheme, it has no energy responsibility. See section 4.7 for further details.

1.3 Calculating whether you meet the qualification thresholds

To find out if you qualify, you will need to use your total employee numbers (calculated in accordance with section 1.4), and your turnover and balance sheet totals (see section 1.5) used in your accounts for the financial year ending either:

on the qualification date of 31 December 2022

in the 12 months immediately preceding the qualification date of 31 December 2022

These criteria apply to the individual undertakings in your group, so if you report using consolidated accounts you will need to ensure you consider whether any of the individual undertakings is a large undertaking in its own right.

As the rules for being a large undertaking or not require you to have exceeded the threshold, or falling under it for two consecutive years, if your undertaking is close to the qualification thresholds, or has grown or shrunk recently, read section 1.6 which includes additional information to help you establish if you qualify.

1.4 Definition of an employee

A person is employed by an undertaking if they are:

an employee

an owner or manager

a partner

An ‘employee’ is a person employed under a contract of service or employment contract. Their contracted hours and status (full time or part time) are irrelevant to their classification as an employee. Other workers, such as those engaged under a contract for services which does not meet the definition of an employment contract, do not fall within the definition of an employee for the purposes of ESOS .

If your organisation is reporting the number of its employees under the Companies Act 2006 requirements in its annual reports to Companies House, the rules used to calculate the figures for the annual report should be used for the purpose of determining qualification with ESOS .

The number of employees means the average number of people employed by the undertaking in the year, on a monthly basis.

To determine whether you meet the employee criteria you need to work out your average number of employees in the relevant accounting period:

note the number of people employed by the company for each month of the financial year (whether for the whole month or part of it)

add together the monthly totals

divide by the number of months in the financial year

1.4.1 Overseas employees

If you are a UK undertaking which directly (not through a foreign subsidiary) employs people who are based overseas, you must still include them in your employee count.

If you are an overseas company with a UK establishment you should determine your qualification based on the number of UK employees who are eligible to pay income tax in the UK .

1.4.2 Agency workers

You usually do not have to count agency workers as employees but you should check their contracts with a legal advisor to confirm this.

If you sub-contract work then you should talk to HM Revenue & Customs to find out if the sub- contractors are considered your employees.

If you are a sub-contractor and you take on work for an organisation that’s subject to the Public Contracting Regulations, this does not necessarily mean that the work you do for them is excluded from ESOS .

Example of calculating employees

Company A’s financial year runs from 1 April to 31 March the following year.

At the qualification date (31 December 2022) for the third ESOS compliance period, Company A’s most recent set of financial statements are those for the year to 31 March 2022.

This means Company A must calculate the number of employees during that period.

On 1 April 2021, Company A had five directors and 235 employees. On 10 July 2021 Company A hired 20 more employees.

There were no further changes in employee or director numbers before the end of the year. For 3 months in its financial year (April, May and June) Company A had a total of 240 staff (5 directors plus 235 employees).

For 9 months of the year (July 2021 to March 2022) the company had a total 260 staff (5 directors and 255 employees).

For ESOS purposes, Company A’s number of employees for the year is: [(240 × 3) + (260 × 9)] ÷ 12 = 255.

Company A exceeds the employee threshold of 250 at the qualification date. (However since they have recently gained staff they would need to look back over previous years’ totals to establish if they qualify for ESOS – see section 1.6).

1.5 Meeting the financial conditions

To find out if you meet the financial threshold, you must calculate your turnover and balance sheet total.

You should start by checking your organisation’s annual financial statements, ending on or in the 12 months before 31 December 2022.

If you are unsure whether your corporate group contains a large undertaking, based on financial criteria, each entity in a corporate group may need to look at the accounts required under the Companies Act 2006 Section 394 (duty to prepare individual accounts) or 395 (individual accounts: applicable accounting framework). Where an undertaking is not required under the Companies Act 2006 to produce individual accounts they may need to estimate the annual turnover and annual balance sheet total for the undertaking for a 12-month period including the qualification date.

In summary, ‘turnover’ in relation to an undertaking means the amounts derived from the provision of goods and services falling within the company’s ordinary activities, after deduction of:

trade discounts

value added tax

any other taxes based on the amounts so derived

Most investment companies are simply investment vehicles for their shareholders.

As such, they do not supply goods or services to customers and have no turnover.

Where investment companies do not have turnover and also employ fewer than 250 persons they fall outside the scope of ESOS in their own right. However investment companies with at least one group member that provides goods and or services, and meets the definition of a large undertaking, qualify for ESOS .

This means all the group’s activities within the UK , including the investment companies, fall within the scope of ESOS .

‘Balance sheet total’ means the aggregate of the amounts shown as assets in the company’s balance sheet (that is before deducting both current and long-term liabilities). Therefore it is the gross figure, not the net figure.

1.5.1 Overseas activities

If your undertaking is registered in the UK but directly owns or runs overseas activities which are not overseas registered subsidiaries, then you should include the turnover and balance sheet total contributions of these activities when assessing whether that undertaking is a large undertaking.

If a UK company owns overseas registered subsidiaries then the turnover and balance sheet totals of those companies are not included in the assessment of qualification for the UK undertaking.

1.6 Organisations which are very close to the qualification thresholds or have recently shrunk or grown

If your organisation is very close to the threshold for qualification or has recently grown or shrunk then you may need to look back over several accounting periods to establish if you qualify. This is because the status of an organisation is determined by whether they have maintained their size for at least two consecutive accounting periods. The exact wording from the 2023 amended ESOS Regulations is as follows:

Where, in any accounting period, an undertaking is a large undertaking (or a small or medium undertaking, as the case may be), it retains that status until it falls within the definition of a small or medium undertaking (or a large undertaking, as the case may be) for two consecutive accounting periods.

So for example, an organisation that was over the ESOS qualification threshold every year for the last 10 years and then shrunk in the accounts ending in April 2022 would still qualify for ESOS . This is because it has not maintained the smaller size for two consecutive accounting periods, so it is still considered as a large undertaking.

Conversely, if for the last five years a company did not meet the qualification thresholds and then has grown in its accounts ending in December 2022 (and now meets the qualification thresholds) then it would not qualify for ESOS . This is because it has not maintained the large undertaking size for two consecutive accounting periods, so it is still counted as a small or medium undertaking.

The table shows two scenarios of when Company A and Company B met the qualification thresholds over the past 5 year accounting period and if they qualify.

Company 2018 2019 2020 2021 2022 Qualified for ESOS A Yes Yes No No Yes No B Yes Yes No Yes No Yes

Company A is a small or medium enterprise ( SME ) and is not in scope of ESOS – although it meets the criteria of a large undertaking in the 2019 and 2022 accounting periods, it is not in scope of ESOS because it does not meet the large undertaking criteria for two consecutive accounting periods.

Company B is a large undertaking and is in scope of ESOS – although it falls under the criteria of a large undertaking in 2020 and 2022, it is in scope of ESOS because the last time it had two consecutive accounting periods at the same size it met the large undertaking criteria.

If an organisation has been fluctuating higher and lower than the threshold year-on-year then the organisation will have to go back as far as is takes to find two consecutive years where the same status exists. This will then determine the organisational status for the purpose of its ESOS qualification. There is no end date for how far back organisations may have to go to determine this information (meaning they may have to go back to before the current ESOS compliance period).

If, since the organisation was formed, an organisation has never maintained two consecutive years at the same size then the size in the year it was formed will be what determines its organisational status for the purpose of its ESOS qualification. If an organisation has only been in existence for a few months it will take the average number of employees during that period and consider its finances on a pro-rata basis to determine its qualification status.

If you are close to the qualification threshold and are looking back at previous years’ accounts then the exchange rate on the qualification date for the compliance period is what determines the pound sterling qualification thresholds for all previous years (not the exchange rate at the time of the accounts). Therefore the figures which are relevant for compliance period three are an annual turnover in excess of £44 million and an annual balance sheet total in excess of £38 million.

2. Corporate groupings for qualification and participation

If a corporate group contains at least one undertaking in the UK which meets the qualification conditions, its entire UK operation must take part in ESOS .

A corporate group is defined in the Companies Act 2006. Sections 1158 to 1162 of that Act explain how to identify if an undertaking is a parent to, or subsidiary of, another undertaking.

The highest UK parent of a group is the undertaking which has no parent, or only has parents which are overseas undertakings. All subsidiary undertakings of that highest UK parent are by default part of the same participant for ESOS .

By default the highest UK parent acts as the responsible undertaking – this means it will complete the ESOS assessment and notify the Environment Agency of compliance for itself and subsidiary undertakings. The responsible undertaking is the organisation responsible for ensuring the group complies with the requirements of ESOS .

Another undertaking within the highest parent group can be chosen to act as the responsible undertaking provided all undertakings in the highest parent group agree this in writing, and keep a copy of this agreement in their evidence pack.

Undertakings within a highest UK parent group can disaggregate from one another for the purposes of compliance with ESOS , provided they agree in writing with their highest parent, again keeping a copy of this agreement in their evidence pack.

Undertakings that disaggregate must each report compliance as two or more separate participants. See section 2.6 for more details.

If a corporate group contains overseas parent undertakings, the corporate group may consist of more than one highest UK parent group. In this instance, if one highest UK parent group is in scope of ESOS then every other highest UK parent group in the same global group must also participate in ESOS . However, the default in this circumstance is that each highest UK parent group will participate separately.

If the highest UK parent groups within the same corporate group wish to comply as one participant (to ‘aggregate’), all highest parents in those highest parent groups must agree in writing which of them is to be the responsible undertaking in relation to the participant’s compliance with the scheme. See section 2.7 for more details.

2.1.1 Examples of how to identify the corporate groupings for qualification

Example 1: when all companies are UK undertakings

Company A has two subsidiaries: B and C. Company B has one subsidiary, B1, and Company C has one subsidiary, C1.

These companies make up a corporate group. All the companies are UK undertakings.

B qualifies as a large undertaking and so all companies within the corporate group must participate in ESOS .

Here, Company A is the highest parent and the companies jointly make up a highest UK parent group since they share a common highest UK parent.

For participation all the companies would form one participant (by default with the highest UK parent reporting), unless one or more of the subsidiary undertakings agree to disaggregate.

Example 2: corporate group with overseas parent

A is an overseas undertaking. Both B and C are highest UK parents since neither has a UK based parent.

In this case there are two highest parent groups in the overall corporate group. Even though B is the only large undertaking in the group, C and C1 must comply with ESOS since they are part of the same corporate group as B as they share the same overseas parent.

The fact they are not in the same highest UK parent group as B is irrelevant to their ESOS qualification.

For participation B and B1 would form one participant (highest UK parent group), while C and C1 would form another unless one or more of the subsidiary undertakings agree to disaggregate.

A would not be required to participate because it is not an undertaking in the UK .

Example 3: corporate group with UK establishments and UK large undertakings

A is an overseas undertaking with a branch in the UK which is registered at Companies House as a UK establishment. As B is a large undertaking both A and B qualify for ESOS , by virtue of having a common overseas parent, and they are both highest UK parents since neither has a UK based parent.

In this case there are two highest parent groups in the overall corporate group. They can agree to aggregate or participate separately to meet their obligations under ESOS .

Example 4: corporate group with UK large establishment

A is an overseas undertaking with a branch in the UK which is registered at Companies House as a UK establishment. A employs 250 staff in the UK . A therefore must comply with ESOS .

2.2 Joint ventures

An undertaking is a parent undertaking to another undertaking (known as a subsidiary undertaking), if any of the following apply:

it holds a majority of the voting rights in the subsidiary undertaking, or

it is a member of the subsidiary undertaking and has the right to appoint or remove a majority of its board of directors, or

it has the right to exercise a dominant influence over the subsidiary undertaking by virtue of provisions contained in the undertaking’s articles, or by virtue of a control contract, or

it is a member of the subsidiary undertaking and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in the undertaking

For the purpose of ESOS qualification assessment and compliance, an investor (undertaking) will only be deemed to be in the same corporate group as a company it invests in where it meets one of the points previously stated.

Joint ventures will need to assess their qualification for ESOS on their own and will participate in the scheme in their own right if they qualify where either:

no organisation holds a majority of the voting rights in the undertaking

no organisation is a member of the undertaking and has the right to appoint or remove a majority of its board of directors

no organisation has the right to exercise a dominant influence over the undertaking, either: by virtue of provisions contained in the undertaking’s articles, or by virtue of a control contract

no organisation is a member of the undertaking and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in the undertaking

In the Companies Act 2006, ‘undertaking’ means either:

a body corporate or partnership

an unincorporated association carrying on a trade or business, with or without a view to profit

2.3 Franchises

For the purpose of determining ESOS qualification, franchisors are not grouped with their franchisees (unless they are also a parent undertaking of the franchisee undertaking).

If a franchisor and one or more franchisees all individually qualify and wish to comply as one participant, this is allowed.

This is subject to a written agreement between all parties, and one undertaking becoming the responsible undertaking.

You must keep all details relating to which organisations are participating together in your evidence pack.

2.4 Trusts

Assets held in trust must be included in ESOS if the organisation that is party to the agreement for the supply of energy to the assets qualifies for ESOS .

The qualification of these parties is determined in the normal way.

Where there is no energy supply, the trust assets will not need to be included in an ESOS assessment because trust assets only fall into ESOS if an energy supply agreement is held. The concept of a supply agreement being in place only affects the qualification of trusts for ESOS , all other types of undertaking which meet the qualification criteria will be required to participate in ESOS if they meet the qualification criteria.

The table summarises how responsibility for ESOS compliance for a trust asset is determined.

Asset responsibility Arranges the supply of energy to the asset Qualifies for ESOS in their own right Include the asset as part of their own ESOS assessment Include the asset as a separate ESOS compliance notification Dominant beneficiary Yes Yes Yes No Alternative Investment Fund Manager ( AIFM ) Yes Yes No Yes Operator (Op) Yes Yes No Yes Trustee (where a AIFM or Op exist) Yes Yes No Yes Trustee Yes Yes Yes No

Trustees, operators, AIFMs and third-party undertakings which have a responsibility to undertake an ESOS assessment in relation to assets held in trust must participate separately in relation to the trust, themselves and any other trust for which they have ESOS responsibilities.

2.5 Private equity firms and private finance initiatives ( PFI )

Private equity firms and their portfolio companies are treated in the same way as other undertakings. They will need to establish whether they are legally part of the same corporate group in accordance with Sections 1158 to 1162 of the Companies Act 2006.

If having established the groupings the private equity firm is deemed the parent undertaking and at least one undertaking qualifies then the whole group would need to comply with ESOS . The parent could take responsibility for all the subsidiaries or it could choose to disaggregate them.

Undertakings involved in PFI arrangements will also have to determine whether they are legally part of any corporate group in accordance with the Companies Act 2006 or whether they are a standalone undertaking. If the undertaking qualifies in their own right or is part of a qualifying corporate group, then they will need to participate in ESOS .

Having established whether an undertaking qualifies, the responsibility for energy supplies is determined in the normal manner. See section 4.1 onwards.

2.6 Disaggregation of undertakings from the highest UK parent group

Undertakings within a highest UK parent group can disaggregate from the rest of the group if they wish.

This allows them to participate in ESOS individually, or as smaller groupings. When undertakings choose to disaggregate:

individual undertakings participating on their own act as their own responsible undertaking

undertakings participating as smaller groups must agree which one will act as the responsible undertaking

To disaggregate, an undertaking must have an agreement in writing with the highest parent.

The agreement in writing should be made between individuals with management control of the undertakings involved (board directors or equivalent) and copies kept in the evidence pack.

Disaggregation may help you manage ESOS participation, for example, if parts of your group operate separate energy management processes or company finances.

Disaggregation does not exempt subsidiaries from participating in ESOS . Each resulting participant, after disaggregation has been agreed, must fully comply on their own behalf including working out their total energy consumption and ensuring that at least 95% of their energy is covered by a compliance route.

The answers you provide to the questions in the ESOS compliance notification will show your regulator that disaggregation has occurred.

Where there is no agreement in writing from both parties, the liability for compliance will rest with the organisation that has been determined as the responsible undertaking for the participant containing the highest UK parent in the group (either the highest UK parent itself or another agreed undertaking).

Where agreement in writing for the disaggregation for both parties can be evidenced and one party has not complied then liability for compliance will rest with the responsible undertaking of the participant that has not complied.

2.7 Aggregation of highest UK parent groups

If there’s more than one highest UK parent in a corporate group, the highest UK parent groups can choose to aggregate if they want to comply as one participant. Aggregation between highest UK parents and their undertakings requires the mutual consent of the highest parents.

The aggregation of two or more highest UK parent groups does not prevent parts of any of those groups from disaggregating from the larger group for the purposes of compliance, as long all the UK organisations in the overall corporate group comply.

The diagram illustrates aggregation.

Y and X are both highest UK parent groups If they choose to aggregate one of the group members will take responsibility for the whole group of undertakings.

2.8 Changes to groups of undertakings

If one or more undertakings leave a qualifying group between the ESOS qualification date (31 December 2022 for the third compliance period) and the compliance date (extended to 5 June 2024 for the third compliance period, see section 3.1) the undertakings must still comply with ESOS .

An undertaking can comply:

with its previous group

with its new group

on its own, in the absence of a written agreement with the previous or new group

If a qualifying group purchases an undertaking (between the qualification date and the compliance date) from an organisation that did not qualify for ESOS then the energy supplies do not need to be included in your total energy consumption calculation and will not need to be audited or covered by an alternative route to compliance.

If a qualifying group sells an undertaking to an organisation that did not qualify for ESOS then the energy supplies of the purchaser do not need to be included in ESOS . Only the energy supplies of the undertaking that has been purchased will be subject to ESOS .

3. Deadlines

Qualification is based on the status of your organisation on the relevant qualification date. If your organisation qualifies, you must participate in ESOS and notify compliance to the Environment Agency by the last date of each compliance period (‘the compliance date’).

In the third compliance period the compliance date has been extended for 6 months to 5 June 2024. For the majority of ESOS purposes this is the compliance date for the third compliance period. Where this is not the case, this is set out in section 3.2.1 and will be made clear in this guidance. The fourth compliance period continues to start on 6 December 2023.

The dates of the third compliance period have not changed, only the associated compliance date, so references to the third compliance period in this document refer to the period from 6 December 2019 to 5 December 2023. The qualification date for the third compliance period also remains the same.

Compliance period Qualification date Compliance period Compliance date 1 31 December 2014 From 17 July 2014 to 5 December 2015 5 December 2015 2 31 December 2018 From 6 December 2015 to 5 December 2019 5 December 2019 3 31 December 2022 From 6 December 2019 to 5 December 2023 5 June 2024 4 31 December 2026 From 6 December 2023 to 5 December 2027 5 December 2027

The 2014 ESOS Regulations came into force on 17 July 2014. The first compliance period can only be specified as starting from the date of the regulations coming into force. However, energy audits and alternative compliance routes conducted up to 4 years before the first compliance date (meaning since 6 December 2011) were able to be used towards compliance for the first compliance period.

If you believe that you will not meet the new extended compliance deadline for the third compliance period, please read section 15 on compliance and enforcement which outlines the steps you need to take.

For the majority of ESOS purposes, the compliance date for the third compliance period is extended to 5 June 2024. In particular this applies to:

undertakings which leave a corporate group between the qualification date and the compliance date (section 2.8)

excluding assets from your total energy consumption which you no longer own (section 4.3.1)

the period for which data can be used for the energy audit (section 8.3)

producing the ESOS report (section 10)

report (section 10) submission of the compliance notification (section 12)

publication of information (section 12.4)

For the requirements around alternative compliance routes ( ISO 50001 , Display Energy Certificates ( DECs ) and Green Deal Assessments ( GDAs ) the period during which ISO 50001 energy management systems can be certified and the period during which DECs and GDAs can be issued is extended to 5 June 2024. For ISO 50001 , the accreditation must remain valid either on the original compliance date of 5 December 2023, or the new compliance date of 5 June 2024, whichever the participant chooses. Similarly for DECs and GDAs , the DEC or GDA must remain valid either on the original compliance date of 5 December 2023, or the new compliance date of 5 June 2024, whichever the participant chooses.

For the requirement to maintain an evidence pack for two compliance periods following the compliance period it relates to, this has been extended for the evidence pack for the first compliance period, so that this must now be kept until 5 June 2024.

For the requirement to calculate total energy consumption, the reference period for which total energy consumption must be calculated has not changed, so that it must still include the qualification date of 31 December 2022 and end before 5 December 2023 (see section 4.4).

For the requirement to report on energy savings since the previous compliance date (section 10.2.1), the dates will not change so that in both the third and fourth periods the energy savings are reported over a 4 year period and there is no period which is double counted in both compliance periods.

Changes to the compliance date for the third compliance period do not affect subsequent compliance periods or the deadlines by which action plans and progress updates must be submitted, or the dates covered by action plans.

If your status changes after the qualification date for a compliance period, this will not affect your eligibility for ESOS . You must still comply by the compliance date for the period if you qualified for the scheme on the qualification date.

For example, if you qualify for the third compliance period based on your organisational status on 31 December 2022 you must still comply by 5 June 2024 regardless of any changes to your size or structure during the intervening 17 months.

Your status at the next qualification date, 31 December 2026, will determine whether you qualify for the fourth compliance period.

4. Steps for carrying out an ESOS assessment

All organisations that fall under the qualification requirements set out previously are required to complete an ESOS assessment.

Here is a checklist outlining participants requirements. We have added details on each requirement. You will need to:

measure total energy consumption

identify areas of significant energy consumption (if you have chosen to do so)

calculate your energy intensity ratios

consider available routes to compliance

ensure areas of significant energy consumption (or total energy consumption if you have chosen not to identify areas of significant energy consumption) are covered by a route to compliance

appoint a lead assessor (unless you have zero energy consumption, use less than 40,000 kWh of energy or have ISO 50001 energy management system which covers 100% of your total energy consumption – see section 7.2)

of energy or have energy management system which covers 100% of your total energy consumption – see section 7.2) carry out energy audits or use alternative compliance routes for your areas of significant energy consumption or, as applicable, total energy consumption

complete the ESOS report

report share the ESOS report, and any relevant documentation relating to alternative compliance routes, with group undertakings

report, and any relevant documentation relating to alternative compliance routes, with group undertakings get one or more directors to review the findings of the assessment

submit an ESOS notification of compliance through the online notification system (known as MESOS )

notification of compliance through the online notification system (known as ) keep a record in your evidence pack of the ESOS notification of compliance (either by printing it or retaining an electronic copy), a copy of your ESOS report and any other records of the assessment

Changes for participants complying using ISO 50001 In the third compliance period all ESOS participants must now calculate their total energy consumption to calculate energy intensity ratios. This is a change from previous phases. Section 4.6 provides information on using estimates if verifiable data is not available through the ISO 50001 energy management system for all energy consumed during the reference period. There are further requirements in the third compliance period for participants whose ISO 50001 energy management system covers all their energy supplies, which are set out in section 7 and section 9.1.

4.1 Measuring your total energy consumption

All ESOS participants must calculate their total energy consumption during the reference period (see section 4.4). This must be calculated in a common unit, which can either be an energy unit (such as kWh ) or energy spend in pounds sterling. CO2 is not an energy unit.

When considering which units to use for your total energy consumption calculation, you may wish to consider that energy intensity ratios (see section 6) must be calculated in terms of kWh used over the reference period. You may still wish to calculate your total energy consumption in cost terms, for the purpose of identifying, should you elect to do so, your areas of significant energy consumption (see section 5).

The calculation of total energy consumption must be based on the energy supplied to and consumed by the participant’s assets and activities, for example buildings, transport and industrial processes. All energy consumed in the UK by a participant (the qualifying group unless otherwise agreed – see section 2) must be included. This is regardless of whether the asset is held directly by an overseas undertaking within the qualifying group rather than a UK undertaking or UK establishment.

Use the government conversion factors for company reporting to help you measure energy consumption in common units.

If a fuel you use is not listed, you should contact your fuel provider to get information about its properties.

The calculation of total energy consumption will enable you to identify which assets or activities you will subsequently need to ensure are covered by a route to compliance.

From the third compliance period all ESOS participants will need to report their total energy consumption in their ESOS notification of compliance. If you are audited by your regulator, you may be required to provide the evidence used to determine it.

You are required to cover assets and activities accounting for not less than 95% of your total energy consumption by a route to compliance. See section 5 on identifying areas of significant energy consumption for further details on this.

4.2 How energy is defined

Under ESOS , energy is defined as all forms of energy products, including:

combustible fuels

heat (excluding your organisation’s surplus heat from industrial processes)

renewable energy

electricity

fuel used in transport

There are no fuel type exemptions in ESOS .

4.3 What energy supplies to include in your total energy consumption calculation

Energy that is both supplied to and consumed by a participant is in scope of ESOS .

For the purposes of the calculation, you only need to consider input energy. Only include heat where you are importing the heat to your site or process. Where the heat is obtained by converting another source of energy such as gas into heat (on site) measure energy relating to the gas but not the heat produced to avoid double counting.

‘Energy supplied’ means any energy that the participant uses under an agreement with a supplier or third party. This includes energy that is supplied to assets it holds or activities it carries out, and includes buildings, installations, transport and construction activities. It also includes any energy the participant generates itself, except capturing and consuming surplus heat from an industrial process.

Energy used in the gas and oil industry in the UK offshore area is included in ESOS – please see the ESOS Regulations 2014 for the definition of the offshore area if you are unsure.

Only energy consumed in the UK , including the offshore area, by a participant is required to be included. Do not include energy used outside this area unless it involves international travel in which case special rules can apply (see section 4.3.4).

4.3.1 Assets you hold and activities you carry out

Your calculation of total energy consumption must include energy consumed in relation to activities carried out and assets that you held on the qualification date. You may elect to exclude energy consumed by any asset which is no longer held, or any activity which is no longer carried out on the compliance date (which for the purpose of the third compliance period is 5 June 2024). Holding an asset does not mean you have to own the asset (for example you may be borrowing, using, renting or leasing the asset).

4.3.2 Buildings

All energy use in buildings is included in ESOS .

In relation to multi-tenanted buildings and landlord-tenant relationships, the responsibility to include energy within a participant’s total energy consumption calculation is determined by whether the participant are both:

supplied with that energy

consume that energy by the assets it holds or by the activities it carries out

Where the participant supplies energy to another organisation, that amount of energy should be measured or reasonably estimated and excluded from the calculation of the total energy consumption calculation.

The landlord and tenant should determine between themselves who is responsible for the energy based on the information previously stated. They will need to bear in mind that the organisation with the ability to control the energy use should:

take responsibility for the energy supply

audit it to identify energy saving opportunities (if the qualification criteria for ESOS are met)

Keep copies of any notes or emails to support what you exclude from your total energy consumption. This should go in your evidence pack.

Where an ESOS participant moves from one building or asset to another during the compliance period it must include activities carried out in the original building on the qualification date which are being moved to the new building in its total energy consumption calculation.

This applies where the energy is measured or can reasonably be estimated, and includes use of computers, copiers, and manufacturing processes. If it no longer holds the original building on the compliance date, the energy use associated with it may be excluded from the calculation of total energy consumption. For example, this may refer to the heating, ventilation, air conditioning and lifts. However, if it remains in possession of the building on the compliance date, even if unoccupied, it will need to include any energy used in the building in the calculation of total energy consumption.

Where an employee works from home, you do not need to include the energy used by them within their homes in your total energy consumption calculation.

4.3.3 Installations, including combined heat and power plants ( CHP )

Large installations generating or using energy are included in your total energy consumption calculation.

In a combined heat and power ( CHP ) or other power generation process, only the incoming fuel and mains electricity need to be included in the calculation of your total energy consumption for the purpose of ESOS . You do not need to include the heat created and used and electricity created in the calculation.

4.3.4 Transport

Energy consumption from transport is included in ESOS .

You are required to include transport where your organisation is supplied with the fuel for business purposes. However, this does not apply where you procure a transportation service that includes an indirect payment for the fuel consumption.

The calculation, as either energy measurement units or energy spend, must be based on verifiable data where reasonably practicable. Where verifiable data is not available for all of the reference period, the calculation may be based on reasonable estimates – see section 4.6.

For instance, you could use the number of expensed miles multiplied by an average fuel consumption factor to estimate the usage (See Appendix C, section C9 for a worked example).

Where estimates are used you must notify the scheme administrator, and the reasons and method of estimation must be kept in your evidence pack.

Energy consumed for the purposes of transport means energy used by a road going vehicle, a vessel, an aircraft or a train:

‘aircraft’ means a self-propelled machine that can move through the air other than against the earth’s surface

‘road going vehicle’ means any vehicle in respect of which a vehicle licence is required under the Vehicle Excise and Registration Act 1994 or which is an exempt vehicle under that Act

‘train’ has the meaning given in section 83 of the Railways Act 1993

‘vessel’ means any boat or ship which is self-propelled and operates in or under water

A participant’s energy consumption includes energy consumed for the purposes of transport by an aircraft or a vessel during any journey which starts, ends, or both starts and ends within the UK . For the purposes of ESOS , the definition of a ‘journey’ for both aircraft and sea vessels is the travel which takes place between the departure from one point, and arrival at the next point.

A participant may elect to include:

energy consumed for the purposes of transport by an aircraft or a vessel, during a journey which both starts, and ends, outside the UK

energy consumed outside the UK for the purposes of transport by a road going vehicle or a train

In your calculation of your total energy consumption, include fuel used in:

company cars on business use

fleet vehicles which you operate on business use (see Appendix C, C8)

personal or hire cars on business use

private jets, fleet aircraft, trains, ships or drilling platforms which you operate

In your calculation of your total energy consumption, do not include fuel associated with:

train travel of your employees where you do not operate the train

flights your employees take where you do not operate the aircraft

taxi journeys your employees take where you do not operate the taxi firm

transportation of goods where you subcontract a firm or self-employed individual to undertake this work for you (this fuel will be included in the subcontractor’s total energy consumption calculation if they qualify for ESOS )

4.3.5 Construction activities

In your total energy consumption calculation, you must include the energy consumption of assets which you hold on the qualification date and still hold on the compliance date. For the purposes of the third compliance period the compliance date is extended to 5 June 2024. These could include portable buildings and machinery regardless of which site they are on.

In your total energy consumption calculation, you may choose not to include show homes or office buildings under construction. This applies where you use grid electricity in the building and during their construction, but which you will no longer have responsibility for on the compliance date. However, if you are using generators on sites then you must include the input fuels in your total energy consumption if you hold them on the qualification date and the compliance date.

Energy audits need to lead to the most benefit to the participant in terms of identifying energy saving opportunities. This may mean that you need to look at the overall activities you undertake and identify policies and opportunities that would lead to energy efficiency savings if applied across the whole of your business. This would be preferable to targeting specific sites because construction sites are temporary, and energy consumption is directly related to the stage of construction. Hence for a range of construction activities where energy is your responsibility, such as excavation, site cabin use, on-site generators and so on, you will need to complete an audit. Also, where it is practicable you should identify cost-effective opportunities for energy savings.

4.3.6 Energy that is not in scope

The following types of energy are not in scope of ESOS :

unconsumed energy that your organisation does not use, and supplies to a third party

energy consumed outside the UK / offshore area

/ offshore area energy consumed for international travel or shipping where the journey does not start or end in the UK (unless the organisation wishes to include their international travel)

(unless the organisation wishes to include their international travel) energy used in flares at petrochemical works

You can deduct unconsumed supplies from your total energy consumption provided:

the supply is measured (for example with metering)

the supply can be calculated based on verifiable data, or

it can be reasonably estimated

Where a reasonable estimate is made, you must record the details of the method used in your evidence pack.

4.4 Reference period

You must calculate your total energy consumption over a reference period of 12 consecutive months.

The reference period must include the qualification date and end before the compliance date. For the purpose of the third compliance period this is the original date of 5 December 2023.

If you cannot use verifiable data, where reasonable practicable for a full 12 months for the calculation, then you may use reasonable estimates for your calculation to fill in any gaps. You must notify the scheme administrator and record the reasons and the estimation method used in your evidence pack.

The reference period should be the same 12-month period for all energy consumption.

4.5 Using verifiable data

When calculating your total energy consumption, you must use verifiable data where reasonably practicable.

Verifiable data is data you can prove, for example:

an invoice or delivery note

meter reading records and schedules for electricity or natural gas

stock records and readings for stored liquid, solid fuels and waste

automatic meter reading or smart and half hourly meter data outputs, for electricity and natural gas

If you cannot obtain verifiable data for energy consumption or spend you must:

use a reasonable estimate for the calculation (based on other verifiable data, if possible), and show how you got this figure (estimation method)

record the reasons for using an estimate

keep records in your evidence pack

notify the scheme administrator

ESOS participants may also be part of other energy management or energy/emissions reporting schemes, like:

the UK Emissions Trading Scheme ( UK ETS )

Emissions Trading Scheme ( ) Climate Change Agreements (CCAs)

mandatory greenhouse gas ( GHG ) reporting for quoted UK companies

) reporting for quoted companies Streamlined Energy and Carbon Reporting ( SECR )

) Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and limited liability partnerships (LLPs)

Participation in these other schemes does not automatically count as ESOS compliance for the energy covered by those regimes. You can use energy data you collect as part of your compliance with these schemes to calculate your total energy consumption for your ESOS assessment, but you are likely to have to do additional work to ensure you are also compliant with ESOS .

The scope of energy you must include in your total energy consumption under ESOS is broader than that covered by these mandatory and voluntary schemes. This means that it is unlikely you will be able to calculate your total energy consumption based on the data you collect for these schemes alone.

4.6 How to estimate

If you cannot get verifiable data, you can fill in the gaps by estimating data. To do this, you could use:

direct comparison

pro-rata extrapolation

benchmarking

Direct comparison means using figures from another comparable time period to fill the gap. For example, you may use figures from the same day, week or month in another year.

Pro-rata extrapolation means using figures you have for one period of time to get average consumption figures for a shorter period.

For example, you could use the average daily rate of energy consumption for 1 March 2023 to 25 March 2023 to estimate the energy used between 26 and 30 March 2023.

Benchmarking means using the energy consumption of one asset or activity as a proxy to estimate the consumption of another asset. For example, you could use the annual energy consumption of one retail outlet to estimate how much energy another retail outlet uses, particularly if they were similar size, age, or build.

If you use any estimates for the purpose of complying with ESOS you must record details of the method used in your evidence pack. Furthermore, where it relates to the calculation of total energy consumption, you must record the reasons for using an estimate in the evidence pack and notify the scheme administrator.

4.7 Zero energy supplies

If you have zero energy supplies during a compliance period then you do not need to carry out any further stages of the ESOS assessment for that compliance period. For example, you may exceed the financial thresholds to participate in the scheme, but have no physical assets or employees using energy. In these circumstances you must:

get two directors (or equivalent) to confirm that although the participant qualifies for the scheme, it has no energy responsibility (section 12)

submit a notification of compliance to the Environment Agency to specify that this is the case (section 12)

keep records in your evidence pack that you have no energy consumption and keep records of your notification of compliance data (section 11)

You do not need to appoint a lead assessor or complete any action plan or annual progress updates.

5. Identifying areas of significant energy consumption

After you have calculated the total energy consumption, you may elect to identify assets and activities that amount to at least 95% of your total energy consumption. These are your areas of significant energy consumption and comprise the assets and activities you will audit or ensure are covered by an alternative route to compliance. The energy used by these assets and activities is termed your significant energy consumption.

If you do not choose to identify your areas of significant energy consumption then you must carry out an energy audit, or use another route to compliance, in relation to your total energy consumption.

Changes for the third compliance period In the third compliance period the amount that may be excluded has reduced to up to 5%, with at least 95% of total energy consumption required to be subject to an energy audit or alternative compliance route.

The maximum 5% of total energy consumption that may be excluded from any audit or alternative compliance measures is known as your ‘de minimis’ energy consumption.

You can classify whichever activities you choose as de minimis energy consumption. However, it is suggested that you include the energy consumption from all of your largest consuming undertakings in your areas of significant energy consumption.

This means you can exclude energy on:

a group basis – for example excluding the consumption of a one or more undertakings

a site basis – for example excluding the consumption of a particular site or number of sites

an asset or activity basis – for example excluding the consumption of an asset or activity, or a defined list of assets or activities

a fuel basis – for example excluding consumption associated with the use of a particular fuel or fuels

You could also exclude energy using a combination of these bullet points.

Supplies which were not required to be included in the total energy consumption calculation (in accordance with the rules set out in section 4.3) are excluded from all future calculations. As a result, these supplies would not have to be included in your significant energy consumption, and would not need to be covered by a route to compliance or included in the de minimis energy consumption.

You must keep records in your evidence pack detailing the energy uses that you have chosen to exclude and include details of your total and significant energy consumption in the notification of compliance you submit.

You will need to also exclude data relating to these supplies from your Energy Intensity Ratio (see section 6.5).

6. Calculating energy intensity ratios

An energy intensity ratio is a measurement which relates an organisation’s energy consumption to an appropriate indicator of activity. The organisation must measure this in a way that allows comparison of energy efficiency performance over time and against similar organisations. For example, a larger building will tend to use more energy than a smaller one. Comparing the energy consumption per unit of floor area between two buildings provides a better comparison of energy efficiency than comparing their total energy consumption.

You must calculate at least one energy intensity ratio for each of the following areas (termed ‘organisational purposes’):

buildings

transport

industrial processes

other energy uses outside these three categories

Energy intensity ratios should be based on the total energy consumption, or the significant energy consumption, reported over the reference period. You do not need to calculate an energy intensity ratio for an organisational purpose where you have used no energy for the organisational purpose during the reference period.

The purpose of requiring energy intensity ratios for ESOS is to allow participants to compare their own performance from one ESOS compliance period to the next. For this reason, the data submitted for the third compliance period (6 December 2019 to 5 December 2023) will act as a baseline for future comparison. Participants may choose to calculate energy intensity ratios for the first and/or second compliance periods (the dates for which are set out in section 3.1) and include them in their ESOS report if data is available. However, they will not be required to include this in the compliance notification.

To calculate your energy intensity ratios, you must:

convert your calculation of total energy consumption or, as applicable, significant energy consumption, into kWh if you have not already calculated it in kWh

if you have not already calculated it in identify the amount, in kWh , of the total energy consumption or significant energy consumption which relates to buildings, transport, industrial processes and/or other energy uses

, of the total energy consumption or significant energy consumption which relates to buildings, transport, industrial processes and/or other energy uses calculate at least one ratio for each organisational purpose which is based on each of the subtotals for total energy consumption or, as applicable, significant energy consumption, divided by an indicator of activity relevant to each organisational purpose

Each of these steps is described in more detail in sections 6.1 – 6.5 of the guidance.

An ‘indicator of activity’ has the same meaning as ‘quantifiable factor’ in paragraph 25C(3) of the ESOS Regulations 2014. The indicators of activity are not prescribed in legislation. You may choose from indicators recommended in section 6.5 of this guidance, or you are free to decide on different ones. Turnover is not recommended as an appropriate indicator of activity because it is influenced by many variables, and as such, it does not provide consistency as a point of reference against which to measure energy efficiency.

If verifiable data is not available, you can use estimated data to calculate your energy intensity ratios. Section 6.6 of the guidance includes more information on using estimated data.

6.1 Calculating your total and significant energy consumption in kWh

You will need to have calculated the total energy consumption or, as applicable, significant energy consumption, as described in the guidance at section 4 and 5, to calculate energy intensity ratios for your organisation.

Your calculation of the total energy consumption, or significant energy consumption, may be based on a reasonable estimate where verifiable data is not available for all of the reference period. For example, you could use the kWh figures calculated for the purpose of the energy audit (see section 8.3) or alternative compliance routes (see section 9) to estimate your total energy consumption or significant energy consumption in kWh .

Where you have calculated the total energy consumption or significant energy consumption in either energy measurement units other than kWh , or as energy spend, the calculation must be converted into kWh in order to calculate energy intensity ratios. Conversions into kWh from other energy measurement units are recommended over conversions from energy spend, where possible, as they are likely to produce a more accurate figure. Where reasonably practicable, conversions must be based on verifiable data. If verifiable data is unavailable, you must base the calculation on a reasonable estimate of the energy consumed in kWh .

You may use the government conversion factors for company reporting to convert energy measurement units that are not based on kWh into kWh . To find the relevant conversion factors, you can download the Greenhouse gas reporting conversion factors spreadsheet for the appropriate time period. You will need to open the tab Fuel properties to find conversion factors to kWh from other units. For converting petrol and diesel in litres to kWh , the ‘average biofuel blend’ is the relevant figure for forecourt fuel.

Your notification of compliance must include your total energy consumption or, as applicable, significant energy consumption in kWh , and confirm whether you used an estimation method to calculate it or convert it into kWh . You must also record details of the estimation method and the reasons why estimates were used in the evidence pack.

6.2 Calculating energy subtotals for buildings, transport, industrial processes and other energy uses

You must calculate the amount of total energy consumption or, as applicable, where you have chosen to identify areas of significant energy consumption (see section 5 for details) that is attributable to each of the following organisational purposes:

buildings

transport

industrial processes

other energy uses outside the previous categories

‘Other energy uses’ includes any energy used by the organisation that is not covered under buildings, transport or industrial processes, and could include but is not limited to:

oil rigs

construction sites

lighting or street furniture (such as parking meters) that makes up a site, but is not attached to the buildings

diesel fuelled generators for uses other than buildings

The calculations must, where reasonably practicable, be based on verifiable data. Otherwise, you must base calculations on reasonable estimates (see section 6.3).

The breakdown of your total energy consumption or, as applicable, significant energy consumption for each organisational purpose must be in kWh . The sum of the energy consumption attributable to each organisational purpose must equal your total energy consumption or, as applicable, significant energy consumption in kWh . You must include your breakdown in your notification of compliance.

6.3 Using estimates when calculating energy subtotals

In some cases it may not be reasonably practicable to use verifiable data to calculate the amount of total energy consumption, or as applicable, significant energy consumption (see section 5) attributable to each by organisational purpose. Instead you must use reasonable estimates.

For example, estimates may be necessary, where a metered supply is used for more than one purpose and there is no submetering in place, or where a bulk fuel is purchased for more than one purpose.

You must keep a record within the evidence pack of the method used and the reason for using an estimate and notify the scheme administrator that an estimate was used.

Worked example

Company A only needs to calculate energy consumption for transport and buildings as it has no industrial processes or other energy use not covered by these organisational purposes. It has one electricity supply which covers transport and buildings, as the same electricity supply covers a building and electric vehicle chargers outside the building and there is no submetering.

Company A estimates consumption for the electric vehicle chargers based on a separately metered supply for similar chargers elsewhere. It then subtracts this transport estimate from the total electricity consumption for the metered supply to determine the consumption for the building.

Company A records the estimation method and the reasons why the estimate was used in its evidence pack. It reports these energy subtotals in kWh by organisational purpose in its compliance notification along with the fact that it used an estimate.

6.4 Which energy intensity ratios to calculate

You must calculate at least one energy intensity ratio for each of the following organisational purposes, where your organisation uses energy for that purpose:

buildings

transport

industrial processes

any other energy uses

Where your organisation does not use energy for any of these purposes you do not need to calculate a ratio for that purpose or report it in your notification of compliance.

The energy intensity ratio for each organisational purpose must be based on the amount of your total energy consumption or, as applicable, significant energy consumption, attributable to the organisational purpose. Refer to sections 6.2 and 6.3 for details of how to calculate this.

You do not need to calculate energy intensity ratios relating to both total energy consumption and significant energy consumption. You will only need one of these depending on whether you have chosen to identify areas of significant energy consumption or not.

If you consider more detail is needed to represent all of the assets and activities relating to an organisational purpose, you may calculate more than one ratio. The ratio(s) you calculate for each organisational purpose must cover all the energy used for that organisational purpose, calculated as described in sections 6.2 and 6.3. For example, you could calculate a single energy intensity ratio which covers all of the significant energy consumption for transport.

Alternatively, you could choose to calculate separate energy intensity ratios for freight and passenger transport which together cover all of the energy used for transport (for example, the freight and passenger energy consumption totals must add up to your significant energy consumption for transport). However, if you have both freight and passenger transport you cannot provide only one energy intensity ratio which covers only freight and leaves out passenger transport entirely.

It may be appropriate to calculate multiple energy intensity ratios to reflect differences in the types of assets and activities that relate to the organisational purpose. You have flexibility to decide how to break down the energy use between activities and assets to calculate multiple energy intensity ratios. For example, if your organisation is a hotel chain which includes energy use in hotels and office buildings, you could opt to provide separate energy intensity ratios for hotel energy use and office energy use. Or you may have only office buildings but decide to calculate separate energy intensity ratios for electricity, gas and heating oil energy consumption.

It is recommended that the energy intensity ratios each relate to separate portions of the total or significant energy consumption. If there are assets or activities that you find difficult to include within an energy intensity ratio, you may wish to take this into account and use significant energy consumption rather than the total. You may choose to exclude these as part of your 5% de minimis. This is the maximum of 5% of your total energy consumption that may be excluded from the audit or alternative compliance route – see section 5.

Energy intensity ratios are intended to allow the organisation’s energy intensity performance to be tracked and compared between compliance phases. Therefore, it is expected that the ratios you choose to calculate and report on in one compliance period will be those you report against in all subsequent compliance periods. If you choose to report against different ratios in the subsequent compliance period, it is recommended that your notification of compliance for that period includes an explanation of the reasons why.

6.5 How to calculate energy intensity ratios

The energy intensity ratio is a metric which relates the energy consumption you have calculated for each organisational purpose in section 6.2 and 6.3 to an appropriate indicator of activity for each organisational purpose. The energy intensity ratio is calculated as follows:

Energy intensity ratio = energy consumption in kWh for the organisational purpose ÷ indicator of activity for the organisational purpose

The indicator of activity is a quantifiable factor associated with the assets or activities that relate to the specific organisational purpose over the 12-month reference period.

The units for any energy intensity ratio must be expressed in kWh /x, where x is the unit that relates to the indicator used, for example kWh /m2 where the indicator is floor area in m2.

You may use the Environment Agency’s recommended indicators of activity set out in the table for the calculation, b

ut you are free to decide on different ones that you consider to be the most appropriate to the circumstances. It is recommended that you keep a record of the reasons for you choice of indicators in the evidence pack.

The recommended indicators are summarised in this table. For full details see sections 6.5.1 to 6.5.4.

Organisational purpose Indicator Buildings Floor area Transport Person mile travelled (for passenger transport) or tonne mile travelled (for freight transport) Industrial processes Unit of industrial output Other A quantifiable output of the organisational activity

Where possible, the Environment Agency recommend that you use verifiable data to determine the value of the indicators of activity. Where verifiable data is not available, they recommend that you use an estimation method. See sections 6.5.1 – 6.5.4 and section 6.6 for information on what is considered verifiable data and how to estimate data where verifiable data is not available. You must record details of the method used to make any estimates.

Your indicators of activity should relate only to the assets and activities used for your calculation of total energy consumption or significant energy consumption. This excludes any assets / activities that you elected not to include in that calculation as being no longer held or carried out on the compliance date (5 June 2024 for the third compliance period) – see section 4.3.1. For example, where there are variations in the building stock held by the organisation over the reference period, you may elect to exclude those buildings no longer held on the compliance date from the calculation of the total energy consumption. In this case, the indicator of activity chosen (floor area) should relate to only those buildings that were held on the qualification date and which are still held on the compliance date.

You will need to ensure for the purpose of calculating the indicators of activity that they relate only to assets and activities that consumed energy for which your organisation is responsible. For example, you may have a building where tenant energy use is sub-metered and recharged and only the energy paid for by the landlord in communal areas is included in your total energy consumption. You would need to calculate or estimate (see section 6.6) the floor area for the parts of the building covered by the landlord supplies. You should keep records in your evidence pack in relation to any exclusions from the calculation of the relevant indicator.

Where you have excluded an asset or activity as falling within the de minimis energy consumption (see section 5), do not calculate an indicator of activity for that excluded asset or activity. For example, if you have five buildings A to E and you exclude building A as part of your de minimis, then you will not include energy consumption from building A as part of your significant energy consumption. As a result, you should not include the floor area of building A in the total floor area you calculate for the energy intensity ratio. This is to ensure that you are comparing like with like.

Where part of the energy for an asset or activity has been excluded as de minimis, you must choose indicators that relate to the relevant areas of significant energy consumption. For example, for buildings where LPG is excluded under de minimis but electricity is included, calculate the energy intensity ratio using the relevant electricity use and building floor areas.

6.5.1 Energy intensity ratio for buildings

The Environment Agency recommend that you calculate the energy intensity ratio for buildings as follows:

Energy intensity ratio = building energy consumption in kWh ÷ total useful floor area in m2 for buildings using energy

The total useful floor area should be the Gross Internal Area ( GIA ), measured in accordance with guidance published by the Royal Institution of Chartered Surveyors.

Sources of verifiable data could be:

Display Energy Certificates ( DECs )

) Energy Performance Certificates ( EPCs )

) Green Deal Assessment Reports ( GDARs )

) valuation office data on floor areas

any other survey or report which clearly states the Gross Internal Area as measured in accordance with the guidance issued by the Royal Institution of Chartered Surveyors ( RICS )

DECs and GDARs are being removed as verifiable data sources for Phase 4.

The floor area figure for some of these sources may exclude parts of the buildings which are neither heated nor cooled, whereas others may include these areas. You can choose either to include or exclude parts of the building which are neither heated nor cooled from the floor area you use for calculating energy intensity ratios. You must make clear in your evidence pack which approach you have used.

Some EPCs may cover only part of a building, such as an internal building unit, so it is recommended that you check which part of a building an EPC covers if this is unclear.

If you do not have verifiable data for the GIA we suggest that you use other data on floor area. This may be floor plans or other surveys or measurements to estimate the GIA (for some examples of estimation methods see section 6.6). Alternatively, you may use a different indicator based on data you do have as long as it is quantifiable and is relevant to the energy used by your buildings.

You must keep records in your evidence pack of any estimates used for calculating the energy intensity ratio.

Worked example – buildings

Company A is a leisure provider and has five leisure centres and an office building. It has DECs for its leisure centres which it uses for ESOS compliance. However, it does not have one for its office building, which also does not have an Energy Performance Certificate. Company A uses the floor areas from the DECs for the five leisure centres and uses a building survey for the office building. As the building survey only includes the Gross External Area, Company A estimates the Gross Internal Area. They keep a record of the estimation method in its evidence pack. Company A would be able to report one energy intensity ratio for all of its buildings, or separate energy intensity ratios for each building using the data on floor areas.

6.5.2 Energy intensity ratio for transport

The Environment Agency recommend that you calculate the energy intensity ratio for transport as follows:

Energy intensity ratio = transport energy consumption in kWh ÷ sum across all journeys of (miles travelled for each journey multiplied by loading indicator for each journey)

This approach is expected be relevant for most participants’ transport use which can be categorised as freight or passenger transport. This is because the main aspects that determine the amount of energy used for transport are likely to be the mass of freight or passengers that is being transported and the distance travelled.

For the calculation to be meaningful you should calculate, for each journey, the miles travelled multiplied by the loading indicator. Then add up each of those figures to produce a total. Calculating the sum of the miles travelled and a sum of the loading indicators and multiplying these two results does not produce the same result.

Whatever loading factor you use, you should use the same one for each journey within the calculation. This is so that you will produce a meaningful indicator.

The loading indicator used for each freight transport journey should be the mass of the freight being transported for that journey, in tonnes. The number of miles travelled for a journey multiplied by the mass in tonnes that is transported for that journey is termed the ‘tonne miles’ for that journey.

The loading indicator used for each passenger transport journey should be the number of people being transported for that journey. The number of miles travelled for a journey multiplied by the number of passengers that are transported for that journey is termed the ‘person miles’ for that journey.

The reason for not simply using miles is that the energy consumed by freight transport is predominantly dependent on the mass of the freight being transported. For example a container ship will use more energy than a lorry, but is able to transport a much greater mass of freight). Also, the energy consumed by passenger transport is related to the number of people being transported. For example a bus will use more energy than a car. Simply calculating energy consumption per mile travelled is not appropriate. This is because the energy consumption is dependent on the mass that is being transported, for which the number of passengers is a proxy.

If you do not have verifiable data for the split of energy consumption between freight and passenger transport you may need to estimate it using similar methods to those set out in section 6.3.

If you have transport that is not easily classed as freight or passenger transport, for example a forklift which is licensed for use on public roads (and hence classed as transport), you have several options:

use an estimated average payload and include this as freight

include this with passenger transport and use the number of passengers as one

use an alternative approach

In all cases you should make clear in your evidence pack what approach you have used and the reasons for this, along with details of the methods used to make any estimates. When entering data for the compliance notification you will need to make clear what approach you have used.

Verifiable data for mileage could be:

MOT records, which include mileage readings

records, which include mileage readings outputs of any vehicle telematic system or recording system which accurately records mileage

records of manual odometer readings

You could use data from employee mileage claims to gather mileage data. However, this would not be counted as verifiable data unless the method of reporting includes submissions from odometer readings, so should be treated as an estimate.

Most organisations are unlikely to have accurate information on occupancy for individual journeys. In these cases, you could use an average occupancy to estimate occupancy for each journey. If an average is used this does not count as verifiable data and so should be treated as an estimate.

Verifiable data for freight tonnage could be outputs of any fleet management system which records tonnage per journey.

Average payload estimates can be used but are not classed as verifiable data and so should be treated as an estimate.

If you do not have verifiable data for the methods described, you can estimate missing data based on data you do hold (for some examples of estimation methods see section 6.6). Alternatively, you can use an indicator based on data you do have as long as it is quantifiable and is relevant to the energy used by your transport assets and activities.

Worked example – passenger transport

Company A is a long-distance coach company and has detailed records for each coach journey of how many passengers there were, as these were booked in advance. They also record the mileage for each route. For each journey, it multiplies the number of passengers by the distance of the journey to calculate the person miles for each coach. It then adds these together to get the total person miles travelled. It reports a single passenger energy intensity ratio and keeps records of all estimates and methods used to make the estimates in the evidence pack.

Company B is a local bus company. It knows the distance of each bus route but does not record mileage. It does not have verifiable data on the number of passengers for each journey. It estimates the mileage based on the length of each bus route and calculates an estimate of the average number of passengers for each bus route. It multiplies the average passengers for each route by the length of each route. Then, they add the estimated person miles for each route together to get the total person miles. It reports a single passenger energy intensity ratio and keeps records of all estimates, and the methods used to make the estimates, in the evidence pack.

Worked example – freight transport

Company C is a logistics company and has 10 HGVs and one van which it uses for some short distance goods transport. Company C keeps detailed records of each HGV journey which includes the mass of freight transported for each journey and the distance of each journey. This allows it to interrogate its fleet database to calculate the individual tonne miles for each of the journeys each HGV takes during the reference period and add these together to calculate the total tonne miles travelled by the fleet during the period. It has mileage records for the van but does not have information on what was transported. It therefore estimates an average freight tonnage for the van and multiplies this by the total mileage and keeps records of this estimation in its evidence pack. It reports a single freight energy intensity ratio that covers the energy use of the 10 HGVs and the van.

Worked example – mixed transport

Company D is a local delivery company, and it has a fleet of twenty vans, two road-registered forklifts, and one fleet car. Company D decides to calculate its energy intensity ratio using tonne miles. It has records of what was transported for each van journey from which it can estimate the mass transported. It also has records of mileage for each van. It does not record mileage for the fleet car, so it estimates mileage over the reference period based on MOT records. It does not record mileage for the forklifts so estimates mileage based on the size of its warehouse, average speed and average hours of operation. It estimates the average mass transported by the forklifts based on other operational data. It assumes an average occupancy of one for the fleet car and uses an estimate for the average weight of a person for the mass transported. It reports a single freight energy intensity ratio to cover all its transport and keeps records in its evidence pack of all estimates made.

6.5.3 Energy intensity ratio for industrial processes

The Environment Agency recommend that the energy intensity ratio for industrial processes is calculated as:

Energy intensity ratio = industrial process energy consumption in kWh ÷ total industrial output for processes using energy

Industrial output could be expressed in terms of mass in tonnes, volume in litres or individual production units (such as cars, fridges and so on) or another relevant unit. Where you have processes with output measured in more than one type of unit and intend to report a single ratio, it is suggested that you convert the outputs to be in the same unit so they can be added together. Alternatively, you could report separate ratios for processes with outputs measured in different units.

If you have a number of industrial facilities where the output of one facility is the input of another facility you will need to use only the final output from the chain of processes for the calculation of the energy intensity ratio This will avoid double counting. See worked example for an industrial product chain.

Verifiable data could be:

any automated system that records output from a process (this should be stated in the evidence pack)

any manual system of recording output from a process as long as accurate and detailed records are kept (this should be stated in the evidence pack)

If you do not have verifiable data on output, you can estimate missing data based on data you do hold (for some examples of estimation methods see section 6.6). Alternatively, you can use an indicator based on data you do have as long as it is quantifiable and is relevant to the energy used by your industrial process assets and activities.

You must keep records in your evidence pack of any estimates used for calculating the energy intensity ratio.

Worked examples – differentiated industrial products

Company A produces honey and beeswax. It measures its beeswax output in tonnes and its honey output in litres. It converts its measured honey output into tonnes based on the verifiable data it holds on the mass of a litre of honey. It calculates one energy intensity ratio in kWh /tonne that includes energy use for both beeswax and honey production.

Company B prints books and sells printing ink. It measures its printing output in units of one hundred pages printed and its ink output in litres. It reports separate energy intensity ratio figures for printing in kWh /hundred pages printed and ink sold in kWh /litre of ink.

Worked example – industrial product chain

Participant C is a corporate group that makes beer and measures its production by the number of crates of beer produced. Company X makes beer and measures its production in litres, and Company Y prints labels and bottles up the beer for distribution.

If participant C calculated both the beer production from Company X and the volume of beer packed into crates from Company Y in tonnes and added them up to create a total output figure it would be double-counting the tonnes of beer in its total output.

Participant C therefore only uses the number of crates of beer produced as its indicator of industrial output but includes the energy use from both Company X and Company Y.

6.5.4 Energy intensity ratio for other energy uses

There may be cases where you have energy uses that do not fall under the main organisational purposes (buildings, transport and industrial processes).

You must use a quantifiable factor associated with the assets or activities that relate to those energy uses over the 12-month reference period.

If you provide an energy intensity ratio in the category of ‘other’, you should record details of the quantifiable factor used to calculate the energy intensity ratio, and the reason why it was relevant.

If you do not have verifiable data for calculating an appropriate indicator you can estimate missing data based on data you do hold (for some examples of estimation methods see section 6.6).

You must keep records in your evidence pack of any estimates used for calculating the energy intensity ratio.

Worked example – other energy uses

Company A considers that the main factor which determines how much energy they use in these operations is the volume of exported hydrocarbons. They therefore use as their energy intensity ratio kWh /barrels of oil equivalent exported.

Energy intensity ratio = energy consumption from offshore hydrocarbon extraction and export in kWh ÷ barrels of oil equivalent

The energy consumption for offshore extraction and export of hydrocarbons excludes energy consumption that would be categorised as for buildings, transport or industrial processes, for example energy used by marine vessels. Company A divides the energy consumption by the volume of exported hydrocarbons, which includes by pipeline or tanker offloading, in barrels of oil equivalent for the reference period. This calculation provides the energy intensity ratio.

Company A would separately report its energy consumption from oil refineries as industrial processes. It would report its energy consumption from any marine vessels such as mobile offshore drilling units as part of its offshore operations as transport, as appropriate (see section 6.5.2).

A similar approach could be used for onshore compressor stations for onwards transmission of hydrocarbons, to use the volume of hydrocarbons that goes through the stations as the indicator of activity.

6.6 Estimates for indicators of activity

When calculating the energy intensity ratio, the Environment Agency recommend that you use verifiable data where possible to calculate the value of the indicator of activity for the organisational purpose. This is your total useful floor area, transport mileage, industrial output or other indicator.

If verifiable data is not available, you should use an estimate and keep a record of the method used to estimate the indicator in your evidence pack. Some possible methods include:

direct comparison

pro-rata extrapolation

benchmarking

These are similar to the methods used in section 4.6 for estimating energy consumption where verifiable data is not available. You can use other methods if appropriate.

You must keep records in your evidence pack of the calculation method for any estimates you used.

Worked example – direct comparison

This is where you use partial data to estimate complete data.

Example: Company J does not have verifiable data for the whole floor area of Building J, so uses the verifiable floor area it has for one floor of Building J to estimate the other floors of the building.

Worked example – pro rata extrapolation

This is where you have figures for a period of time and use this information to estimate data for a different period of time.

Example: Company K does not have access to verifiable data on industrial output from process K for the first three months of the reference period, so it uses figures for months 4 to 9 to estimate the first three months of the reference period.

Worked example – benchmarking

This is where you use data from one asset as an estimate for the data for another asset.

Example: Company L does not have verifiable floor area data for retail outlet M, but does have verifiable data for retail outlet N, which is a similar size and build. It uses the floor area for retail outlet M as a benchmark to estimate the floor area for retail outlet N.

7. Considering available routes to compliance and appointing a lead assessor

You must choose one or more routes to compliance that cover all your areas of significant energy consumption (or total energy consumption, where you have chosen not to identify areas of significant consumption) (see sections 4 and 5).

You can demonstrate that you have carried out a compliant ESOS assessment using:

one or more energy audits (section 8)

one or more alternative compliance routes, which could be ISO 50001 certification (section 9.1), Display Energy Certificates ( DECs ) with accompanying advisory reports (section 9.2) or Green Deal Assessments ( GDAs ) (section 9.3)

certification (section 9.1), Display Energy Certificates ( ) with accompanying advi

Immigration detention capacity Expand capacity to detain immigrants taken into custody $45 bil.

Border wall Fund border barrier system construction and related activities $45 bil.

U.S. Immigration and Customs Enforcement Funding for hiring, training, transportation, facilities and legal resources to carry out immigration enforcement and removals $31 bil.

State and local grants Funding for border security, immigration enforcement and major event security $13 bil.

Homeland Security Department funding For border security and immigration enforcement $12 bil.

U.S. Customs and Border Protection Funding to expand workforce and purchase new vehicles and technology $12 bil.

Border surveillance technology $6.2 bil.

Department of Justice grants For state and local immigration and law enforcement $3.5 bil.

Department of Justice funding For immigration and other law enforcement $3.3 bil.

Fund vetting for sponsors of unaccompanied alien children Through the Office of Refugee Resettlement $0.3 bil.

Presidential residence protection Fund reimbursements to local law enforcement for protecting the president’s private residences $0.3 bil.

Special Immigrant Juvenile fee A new minimum $250 fee to apply for this visa for noncitizens under 21 who are living in the United States and have been abused, abandoned or neglected by a parent —

Temporary Protected Status fee increase Increase in application fee to $500 from $50. This status is made available to nationals from certain countries undergoing an armed conflict or disaster. —

Apprehension fee A new minimum $5,000 fee for any inadmissible noncitizen who is apprehended between ports of entry —

Immigration parole fee A new minimum $1,000 fee for immigrants granted temporary entry on the grounds of “humanitarian or significant public interest” —

Fee for certain nonimmigrants from China A new $30 Electronic Visa Update System fee for certain Chinese nationals who must maintain biographic and travel information in an online system —

Fee for those arrested after being ordered removed for missing a hearing A new minimum $5,000 fee –$0.1 bil.

Fees related to adjustment of immigration status Additional fees, from $500 to $1,500, for adjustment of status granted by a judge or to file appeals –$0.5 bil.

Asylum fee A new $100 minimum fee for anyone who applies for asylum, and an additional $100 per year while an application remains pending –$1.2 bil.

Work permit fee A new $550 minimum fee to submit an employment authorization application. Would apply to asylum applicants, those on parole and those granted Temporary Protected Status. An additional $275 fee would be imposed to renew or extend an authorization. –$2.4 bil.

Electronic travel authorization fee Increase in the fee paid by nationals of countries who are not required to have a visa to visit the U.S., to $40 from $21 –$3.1 bil.

Nonimmigrant visitor fee increase Increase in fee to $30 from $6. This fee is paid when applying for Form I-94, which serves as an arrival and departure record for certain temporary visitors –$9.5 bil.

On July 3, the House passed the Senate’s version of the One, Big, Beautiful Bill Act (H.R. 1) in a vote of 218-214. This followed the Senate’s passage on July 1 by a vote of 51-50, with Vice President Vance casting the deciding vote. Ultimately, Sens. Tillis (R-NC), Paul (R-KY) and Collins (R-ME) and Reps. Fitzpatrick (R-PA) and Massie (R-KY) voted against the bill, along with every Democrat and Independent. President Trump signed the bill into law on July 4.

Key Takeaways Key outreach from local leaders across the country produced several local government wins, including the preservation of tax-exemption on municipal bonds, a temporary raise to the SALT deduction and improved incentives for private investment in underserved communities.

The bill rescinds a substantial amount of funding from the U.S. Department of Transportation Neighborhood Access and Equity grants, as well as unobligated funding from several emissions reduction grants under the U.S. Environmental Protection Agency.

The bill maintains the direct pay mechanism created through the Inflation Reduction Act, it accelerates the phase out of tax credits for solar and wind projects and adds new requirements around supply chain components that will likely limit the ability of local governments to take advantage of the direct pay program.

Significant cuts were made to social safety net programs, including $186 billion through 2034 for the Supplemental Nutrition Assistance Program (SNAP) and $1 trillion from Medicaid.

The bill significantly expands federal immigration enforcement capacity while providing targeted funding to support local public safety and security efforts related to the 2026 FIFA World Cup and the 2028 Olympics, including $500 million to enhance local capabilities for detecting threats from unmanned aerial systems.

The latest estimates from the Congressional Budget Office (CBO) state that the “bill would decrease deficits by $0.4 trillion, relative to the budget enforcement baseline for consideration in the Senate. Compared with CBO’s January 2025 baseline budget projections, it would increase deficits over the 2025‑2034 period by $3.4 trillion.”

Here is a look at key provisions from the final bill that will impact local governments.

Support for Local Governments

Municipal Bonds: While there was discussion about using the tax-exemption on municipal bonds as a “pay for,” the final bill preserved both the tax-exemption on municipal bonds and private activity bonds. This top priority for NLC is a critical financial win for cities, towns and villages across America.

SALT: The bill temporarily raised the State and Local Tax (SALT) deduction cap from $10,000 to $40,000 with phaseouts starting for households earning over $500,000. The cap will increase by 1% annually through 2029. Starting in 2030, the cap will revert to $10,000.

Incentives for Private Investment in Housing, Community, and Economic Development: The bill makes improvements to three federal programs that encourage private investment in underserved areas and households. The Opportunity Zone program , first launched in 2017, has been made permanent. The initial program, and its existing rules, will be replaced by an updated set of rules at the start of 2027. While there are several investor-side changes, some of the changes important to local governments include deeper targeting to economically distressed areas; an opportunity for Governors to re-designate opportunity zones every 10 years; enhanced investor incentives for projects in small and rural areas through Qualified Rural Opportunity Funds that target “areas other than a city or town with a population greater than 50,000”; and new reporting requirements that will enable the public, including local governments, to access more information on investments in their communities, including the location and amount of investment, and an analysis of the employment and housing impacts of Opportunity Zone projects.

, first launched in 2017, has been made permanent. The initial program, and its existing rules, will be replaced by an updated set of rules at the start of 2027. While there are several investor-side changes, some of the changes important to local governments include deeper targeting to economically distressed areas; an opportunity for Governors to re-designate opportunity zones every 10 years; enhanced investor incentives for projects in small and rural areas through Qualified Rural Opportunity Funds that target “areas other than a city or town with a population greater than 50,000”; and new reporting requirements that will enable the public, including local governments, to access more information on investments in their communities, including the location and amount of investment, and an analysis of the employment and housing impacts of Opportunity Zone projects. The Low-Income Housing Tax Credit (LIHTC) program will be permanently enhanced by authorizing a 12 percent credit allocation increase and lowering the bond financing threshold test to 25 percent. The permanence of these changes could drive additional investment to finance the production or preservation of approximately one million additional affordable rental homes over 10 years.

will be permanently enhanced by authorizing a 12 percent credit allocation increase and lowering the bond financing threshold test to 25 percent. The permanence of these changes could drive additional investment to finance the production or preservation of approximately one million additional affordable rental homes over 10 years. The New Markets Tax Credit (NMTC) program was also made permanent. The program supports private investment in projects designed to create jobs and fill needs in underserved areas through Community Development Entities certified by the U.S. Treasury’s Community Development Financial Institutions Fund. Both the LIHTC and NMTC provisions were introduced as stand-alone bills that enjoyed broad bipartisan support before being incorporated into the One Big Beautiful Bill Act.

No AI Preemption: While the House version of the bill included a 10-year moratorium preempting state and local governance of artificial intelligence, this provision was ultimately stripped from the bill by the Senate at the eleventh hour. The preemption, if passed, would have prohibited state and local governments from enforcing any law or regulation governing artificial intelligence for ten years, with extremely limited exceptions. The Senate language would also have conditioned payment of federal broadband infrastructure grant funds on compliance with this moratorium. Numerous organizations, including state and local governments, consumer protection organizations and the entertainment industry, opposed the measure, citing the lack of current federal regulation for AI. NLC and other local government entities also raised concerns that the moratorium could have unintended consequences, potentially even hampering adoption of AI for improvement of city services.

State and Local Homeland Security Assistance: The bill also increases funding for state and local governments. This includes $10 billion in grants to reimburse states for prior border security efforts, $500 million to improve local capabilities to detect threats from unmanned aerial systems, $625 million for security planning related to the 2026 FIFA World Cup, and $1 billion for the 2028 Olympics. Additionally, the bill allocates $450 million to the Operation Stonegarden grant program, which supports partnerships between local law enforcement agencies and Border Patrol. These funding streams may provide local governments with new resources to strengthen public safety, upgrade infrastructure and enhance emergency preparedness in coordination with federal operations.

Areas of Concern for Local Governments

Transportation and Other Grants Clawed Back: The bill rescinds a substantial amount of funding from the U.S. Department of Transportation Neighborhood Access and Equity grants, as well as unobligated funding from several emissions reduction grants under the U.S. Environmental Protection Agency. The original bill text repealed the authorization for these programs, but ultimately due to the Senate parliamentarian’s ruling, the programs are officially retained, but grantees lose any unobligated funding.

Several highway connectivity projects in multiple states, including TX, AL, UT, OH, ME and others, will not receive funding. It will be up to Congress to replace funding for these critical projects in the future, potentially in transportation reauthorization or appropriations.

Among the EPA grant rescissions that local governments are utilizing are:

Climate Pollution Reduction Grants, which consisted of regional planning and implementation grants.

Clean Heavy-duty Vehicles

Environmental Justice/Climate Grants, including the Government-to-Government and Community Change grants. Many communities received termination notices from EPA for this program, which is the subject of a pending class action lawsuit against EPA.

These programs were one-time funding under the Inflation Reduction Act. NLC analysis of USAspending data indicates that most local governments that won grants under these programs have obligated awards, indicating that there might be little funding to claw back from local governments depending on how “unobligated is defined”.

Additionally, Greenhouse Gas Reduction Fund not only sees unobligated funding clawed back in the final bill, but the underlying authorization for the program is also repealed. The program is also subject to ongoing litigation.

Clean Energy Tax Credits: While the final bill maintains the direct pay mechanism created through the Inflation Reduction Act, it accelerates the phase out of tax credits for solar and wind projects and adds new requirements around supply chain components that will likely limit the ability of local governments to take advantage of the direct pay program. For the Investment Tax Credit (48E) and Production Tax Credit (45Y), the final bill retains the tax credit for solar and wind projects that begin construction within one year after enactment. For solar and wind projects that begin construction after that time, they must be placed in service by the end of 2027 in order to receive the tax credit.

the final bill retains the tax credit for that begin construction within one year after enactment. For solar and wind projects that begin construction after that time, they must be placed in service by the end of 2027 in order to receive the tax credit. For other clean energy projects, such as geothermal, hydropower, nuclear and battery storage , the investment and production tax credits are retained through 2033 and then begin a phase out through 2036. This is a longer time frame than originally provided through the IRA.

, the investment and production tax credits are retained through 2033 and then begin a phase out through 2036. This is a longer time frame than originally provided through the IRA. Supply chain requirements related to Foreign Entities of Concern will apply to 48E and 45Y projects that begin construction after Dec. 31, 2025.

For clean commercial vehicles (45W), the tax credit terminates for vehicles acquired after Sept. 30, 2025 and for alternative fuel charging (30C), the tax credit terminates for property placed in service after June 30, 2026.

SNAP Cuts: The CBO’s latest cost estimate shows that the bill cuts federal funding for the Supplemental Nutrition Assistance Program (SNAP) by $186 billion through 2034. The specific changes to SNAP include: Expanding the definition of able-bodied adults without dependents to include individuals up to age 64 (up from 54 currently) and individuals with children ages 14 and older. The Secretary may waive SNAP work requirements for areas with an unemployment rate over 10%, with an exemption for Alaska and Hawaii if their unemployment rate is at or greater than 1.5 times the national average.

Limits SNAP eligibility to U.S. citizens or lawful permanent residents (green-card holders), removing eligibility for certain longstanding or humanitarian statuses apart from certain Cuban and Haitian nationals.

Limits the automatic application of the Standard Utility Allowance (SUA) based on receipt of $20 or more from the Low-Income Home Energy Assistance Program (LIHEAP) and exclusion of utility assistance from countable income to elderly and disabled households. Households can also no longer include internet service costs when calculating their excess shelter deduction for SNAP benefits.

Medicaid Cuts: The CBO’s latest cost estimate shows that the bill would reduce federal Medicaid spending by $1 trillion and increase the number of uninsured people by 11.8 million. Key impacts to local communities include: Work requirements for able-bodied adults without dependents (80 hours per month) aged 19-64. Tribes, fully disabled veterans, parents or caregivers with children age 13 and under or of disabled individuals, pregnant women, former foster youth and those deemed “medically frail” or with special medical needs (including substance use disorder) are exempt. The Secretary may grant waivers to areas (including units of local government) with an unemployment rate of 8% or higher or 1.5 times the national average.

A rural hospital relief fund of $50 billion, which was still $50 billion less than requested by Senator Collins to offset the impact of Medicaid cuts on her state. This is, however, double the size of the previously amended text. The money is to be distributed over the course of five years, but the distribution dates were also pushed up two years, with $10 billion in 2026, $10 billion in 2027, $10 billion in 2028, $10 billion in 2029 and $10 billion in 2030.

Removal of several categories of “qualified aliens” who may become eligible for Medicaid under current law. This group includes refugees, asylees, certain abused spouses and children and victims of trafficking. Legal immigrants who would remain eligible include lawful permanent residents (after a five-year or longer waiting period), certain Cuban and Haitian immigrants and individuals living in the U.S. via a Compact of Free Association.

Incrementally lowering the allowable provider tax in Medicaid expansion states starting in 2028 (one year later than initially proposed) from the current 6 percent until it hits 3.5 percent in 2032. States without provider taxes upon enactment of the bill may not impose them. Non-expansion states with provider tax rates will have their “hold harmless” threshold capped at 6%.

For Awareness

Federal Immigration Law Enforcement Personnel Surge: The bill’s $4.1 billion investment in hiring and training federal immigration and border law enforcement officers — along with $2 billion in signing and retention bonuses — will significantly expand federal immigration enforcement capacity. While intended to enhance border control, this surge could also lead to increased enforcement activities in cities, particularly those with large immigrant populations. Local governments may face heightened pressure to respond to community concerns, address public safety coordination challenges and manage the broader impacts of intensified federal immigration enforcement efforts.

No Tax on Overtime: The bill allows employees to deduct up to $25,000 for joint filers ($12,500 for single filers) in overtime with phaseouts beginning at an income of $150,000. The deduction takes effect in the current FY25 tax year. Regulations are still being finalized by the Department of Treasury. NLC will share additional information as it becomes available.

Next Steps

Although there is disagreement among budget experts over the amount the One, Big, Beautiful Bill Act will add to the federal debt, budget hawks in Congress largely consider the bill a missed opportunity to address the federal deficit. As a result, there could be increased pressure on the Majority party to decrease spending through annual appropriations, including federal grant programs for local governments. (Impacts on State budgets may also be an area of concern for local governments).

With the One, Big, Beautiful Bill Act now signed into law, Congress has until the start of the next fiscal year, beginning Oct. 1, to pass the 12 annual spending bills for fiscal year 2026, the first of which are just starting to be introduced.

President Trump issued an Executive Order on July 7 directing the U.S. Department of the Treasury to issue new and revised guidance for the Investment Tax Credit and Production Tax Credits regarding the definition of “begin construction” to ensure the termination of the clean energy tax credits for solar and wind projects is strictly enforced. Treasury is also directed to take prompt action to implement the new Foreign Entity of Concern restrictions.

Take Action

Any community that previously filed for Direct Pay in 2024 or 2025 is encouraged to add their project to the Local Government Direct Pay Tracker to help build out a public dashboard and show the impact of the clean energy tax credits. The projects are also feeding into NLC’s Rebuilding America dashboard of infrastructure projects.

President Donald Trump, joined by Republican lawmakers, signs the “Big Beautiful Bill” into law during an Independence Day military family picnic on the South Lawn of the White House.

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Fighter jets whooshed by and a stealth bomber streaked through the air during Friday’s annual White House Fourth of July picnic.

The display of might outside was unmistakable, as was the soft power inside the building.

President Trump signed into law his nearly 900-page “Big Beautiful Bill” of tax breaks and spending cuts, affecting millions of Medicaid recipients while growing the Immigration and Customs Enforcement agency by thousands of workers.

The Senate passed the bill earlier in the week, while the Republican-controlled House voted 218-214 in favor of it on Thursday evening, with all Democrats and two Republicans opposed.

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Now that the bill is in effect, it’s a good time to review what’s actually inside.

Times and Associated Press reporters broke down what the passage of the bill means for the country.

Tax cuts take center stage

The BBB contains roughly $4.5 trillion in tax cuts, according to the Associated Press, and solidified the ones from Trump’s first term.

On the teeter-totter of benefits, the wealthiest families will enjoy an average of $12,000 in tax savings, while the poorest people will have to pay an additional $1,600 a year, on average, mainly due to reductions in Medicaid and food aid.

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That analysis of the House version of the bill is is according to the nonpartisan Congressional Budget Office .

While temporarily adding new tax deductions on tips, overtime and auto loans, the bill also adds a $6,000 deduction for older adults making less than $75,000 a year.

The child tax credit is bumped from $2,000 to $2,200, though millions of lower income families will still be unable to get the full credit.

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Caps for state and local tax deductions, known as SALT, will quadruple to $40,000 for five years, offering some benefits to residents of higher-taxed states like California.

Businesses will get a break because they will immediately be able to write off 100% of the cost of equipment and research, which some experts say will boost economic growth.

Deportations, a border wall and missile defense

Another $350 billion is being allocated for border and national security, which includes spending on the U.S.-Mexico border and 100,000 migrant detention beds.

ICE will receive funding to offer $10,000 signing bonuses to new employees, with the aim of hiring 10,000 officers and agents.

Immigrants will fund some of these projects by paying new or increased fees, including when they apply for asylum.

In total, the Department of Defense will receive roughly $1 billion in new funding for border security.

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Another $25 billion is being set aside for the U.S. to develop its own Israel-type of Iron Dome missile defense system, called the “Golden Dome.”

Clean energy gets pummeled

Previous tax breaks meant to create incentives for wind and solar energy are being hacked dramatically.

One incentive that will soon disappear is the electric vehicle tax break of $7,500 for new vehicles and $4,000 for used ones.

That was supposed to initially expire in 2032. Instead, the credit sunsets on Sept. 30.

How is this being paid for?

Republicans are cutting back on Medicaid and food assistance programs for those below the poverty line.

Many adults receiving Medicaid and food stamps, including those up to age 65, will now have to fulfill an 80-hour-a-month work requirement.

Medicaid patients will also have a new $35 co-payment to contend with.

About 71 million Americans use Medicaid, and 40 million benefit from the Supplemental Nutrition Assistance Program, or SNAP, commonly known as food stamps.

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The CBO estimates that 11.8 million Americans will become uninsured by 2034, and 3 million more will not qualify for SNAP due to the changes.

For more on the bill, read our full report here.

The week’s biggest stories

(Chris Pizzello / Invision / AP)

Trump administration pushback

Fires and wildfires

Crime, courts and policing

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This week’s must-reads

California In Pasadena, a community comes together for a 14-year-old street vendor Chris Garcia began selling tamales on behalf of his mother, a legal resident who was caught up in an immigration sweep two weeks ago at Villa Parke in Pasadena.

More great reads

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For your weekend

(Illustrations by Lindsey Made This; photograph by Greg Swales)

Going out

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L.A. Affairs

Get wrapped up in tantalizing stories about dating, relationships and marriage.

Have a great weekend, from the Essential California team

Kevinisha Walker, multiplatform editor

Andrew J. Campa, reporter

Karim Doumar, head of newsletters

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