Use ESOS assessments to further cut CO2 emissions and fuel consumption

A renewed drive by employers to cut fuel consumption in company cars and vans and privately used vehicles driven on business is expected to be delivered with the introduction of a new energy audit regime.

Environmental and journey management, mileage reduction and fuel saving are expected to accelerate further up the corporate agenda as a consequence of the introduction of the Energy Savings Opportunity Scheme (ESOS), thus triggering financial savings for businesses.

An ESOS assessment, described as a catalyst for change, requires qualifying companies (see fact file) to:
¦ Measure their total energy consumption across transport, buildings and industrial activities over a 12-month period
¦ Conduct energy audits to identify cost-effective energy efficiency recommendations
¦ Report compliance to scheme administrator Environment Agency.

ESOS is the Department of Energy & Climate Change’s answer to meet the European Union’s Energy Efficient Directive (Fleet News: August 26, 2014).
When calculating energy consumption, qualifying companies must include business mileage travelled in company-provided cars and vans and ‘grey fleet’ vehicles.

As non-business mileage is excluded from an ESOS audit it is imperative that employers are able to differentiate between corporate and private journeys.
ESOS transport reporting requires companies to determine how much fuel is bought for business use and then, using mileage data and fuel-purchasing records, calculate an energy usage figure.

A smarter way of operating

Businesses must also outline smarter ways of operating through energy efficiency measures with estimated costs and benefits quantified. However, there is no regulatory requirement for organisations to implement measures.
Jon Burdekin, head of consultancy services at business mobility provider Alphabet, says: “Businesses should embrace ESOS regulations because they will save money.”

Non-ESOS qualifying employers, SMEs and the public sector should also voluntarily embrace the regulations, according to Burdekin, because “it is a good discipline and business practice”.

Adam Leaver, client manager with Ecometrica, provider of sustainability solutions and tools to help businesses manage environmental challenges, reduce costs and increase overall performance, advises fleet decision-makers to “keep calm and carry on”.

Calling ESOS “laudable”, he said: “Now is the time to start planning qualifying energy audits or reviewing recent audits. ESOS should be viewed as an opportunity to further promote energy efficiency within organisations and potentially save money and reduce carbon emissions but the likelihood is that many fleets are already doing much of what ESOS is asking for.”

The carbon impact of businesses on the environment –including vehicles – is already reported by thousands of organisations, prompting Leaver to suggest they will have ESOS reporting data already to hand.

He believes most companies covered by ESOS will already employ an energy or sustainability manager in charge of audit compilation, including responsibility for converting the fuel/mileage data into an energy consumption figure.
Leaver adds: “Many fleets will already be focused on reducing fuel use through easy wins such as introducing more fuel efficient cars. For those that are not, ESOS reporting is a great opportunity to focus on generating financial savings. Companies that reduce their carbon emissions are cutting costs; carbon emissions come from burning fuel and fuel is not cheap.”

Burdekin, together with Energy Saving Trust (EST), does not believe that ESOS audit requirements will be “too burdensome” for many organisations in terms of calculating business vehicle travel.

“For a reasonably forward and progressive company, it should be a case of documenting what they are already doing and taking it a stage or two further,” he says.

Challenges and opportunities

It is a view shared by Tim Anderson, senior knowledge manager transport at EST, who was a member of the department’s expert advisory panel establishing ESOS.

“It is not about creating additional red tape, but provides challenges and opportunities for businesses to reduce their energy consumption from transport,” says Anderson, who believes some organisations will find their transport energy consumption falls within the 10% de minimis allowance, making it reportable but not requiring full audit.
Anderson says: “ESOS provides a regulatory framework to help fleets focus on energy use, but is not massively onerous in terms of obligations.”

The department calculates that around 9,400 companies meet ESOS reporting requirements, with 8,500 assumed to operate fleets.

ESOS compliance starts with the accurate capture and analysis of business mileage/fuel use, which is then converted into an energy consumption figure. Ease of data capture will “vary considerably”, says Anderson.

“However, because ESOS reporting is a four-year cycle it should improve over time,” he adds. “At one end of the spectrum businesses will have mileage capture systems in place and drivers will not be inaccurate with their reporting. But at the other end reporting business mileage through expense claims is notoriously inaccurate.”

ACFO chairman John Pryor believes most fleets “should be keeping a log of their vehicle mileage, both in company vehicles and privately-owned vehicles driven on business”.

But, he adds: “What will be key for fleet managers is to be able to identify the business/private mileage split in company-provided vehicles. A combination of mileage records and fuel reimbursement expenses should enable them to convert mileage travelled into an energy consumption figure.”

Gary Killeen, fleet services managing director for GE Capital UK, says: “Unless an organisation can calculate business versus private mileage, it will probably end up reporting all of its fleet mileage and producing an oversized energy consumption figure, which is undesirable.”

Regulatory flexibility meant fleets could report energy consumption via expenditure, explains Alexander Farsan, associate at The Carbon Trust whose work includes helping businesses to introduce energy-saving strategies.

“The vast majority of companies will record some form of fuel bills or expense data and thus have little difficulty,” he says. “Company cars are unlikely to fall within the significant areas of energy consumption for most businesses and those with larger fleets for commercial purposes are likely to already have mileage data.

“How businesses arrive at the expenditure data for use of company vehicles and grey fleet is secondary, but it can be expected that companies will have processes in place to record this separately – for example, through fuel cards and mileage reimbursement.”

With the first ESOS reporting deadline just 14 months away Killen, who advocates the use of a mileage capture tool to make data recording “relatively easy”, says: “Savvy fleet operators will already have controls in place, but it is a tight deadline for those that have yet to address the challenge.”

Mike Waters, senior insight and consultancy manager at leasing and fleet management company Arval, says: “The issue for many fleets will be ‘grey fleet’ mileage, on which it is often difficult to produce accurate reporting.”

For fleets not in possession of accurate data, Waters advises: “The first step is to see if it can meet the requirements of the ESOS assessment through aggregation of the data available – for example, assume an ‘average vehicle’ to obtain an emission conversion factor. However, the best option will be to implement an ongoing process to obtain accurate data.”

Chris Chandler, principal consultant at Lex Autolease, says: “Companies may struggle if business mileage monitoring is not carried out routinely. ‘Grey fleet’ will cause the largest data collection and energy calculation headaches.”

Mileage capture expert The Miles Consultancy (TMC) says fleets should not focus on ESOS as a compliance issue, but as an opportunity to strengthen fuel and mileage reporting processes to deliver cost savings.

Managing director Paul Jackson says: “A large chunk of the apparent business mileage bill in most organisations should not be on the books in the first place. It actually arises from private mileage claimed as business, excessive pence-per-mile rates and unrecovered VAT.

“Once businesses have a clear view of their energy consumption they can start to cost it and seek savings. Our fuel and mileage tools dovetail with ESOS by making journeys, claims, fill-ups, pump prices and the rest fully visible.”

TMC, which says its reporting tool will calculate energy consumption in kilowatt hours (kWh) to comply with ESOS, estimates that every tonne of CO2 saved by a fleet reduces its energy consumption by around 4,700kWh and its diesel bill by £500.

Additionally, the requirement to be able to accurately differentiate between business and private mileage could result in more employers withdrawing the perceived ‘benefit’ of company-funded fuel for private use.

Despite annual tax increases, so-called ‘free’ fuel continues to be received by 220,000 company car drivers, according to latest HM Revenue and Customs figures.

Anderson says it could be “problematic” for employers providing ‘free’ fuel to calculate business mileage and adds: “ESOS will open the door for organisations that have traditionally not considered mileage or focused on cost savings and energy consumption.”

Jackson adds: “Some companies don’t record the business/private mileage split among drivers who have private fuel paid for. Under ESOS they will need to know how many miles were for business.
“This could be a good opportunity to review whether ‘free’ fuel is still a worthwhile benefit.”

Fleet management software company Jaama says its Key2 Vehicle Management Electronic Driver Services module requires company vehicle drivers and own-car drivers to input odometer readings at the start and end of a month and business mileage.

The system then automatically calculates private mileage and identifies any reimbursement due as part of employees’ expenses process.

Jaama managing director Martin Evans says: “Companies should be able to identify business trips to meet ESOS audit requirements at least via their mileage reimbursement systems, irrespective of whether an employee is driving a company or private vehicle.”

Ashley Sowerby, managing director of software provider Chevin Fleet Solutions, adds: “Most well-run fleets are already tracking mileage so that it can be split between business and private but, for those that aren’t, ESOS makes doing so essential.

“This means that these businesses will need to put appropriate processes in place.

“Fleets could opt to use a paper trail of tracking receipts and maintaining driver records, but mileage is more accurately and, ultimately, more cost-effectively recorded using a fuel card and an analysis tool that can import the data such as fleet management software.”

Implementing rigid mileage capture initiatives and accurate reporting will then deliver year-on-year opportunities for companies to revisit fleet policies and procedures to cut energy consumption and consider the potential for low- carbon, low-energy plug-in vehicles, say experts.

The Department of Energy and Climate Change published its ESOS guide this month, recommending a range of cost-effective transport energy efficiency improvements including:
¦ Reviewing vehicle choice and fleet renewal/replacement programmes including the introduction of electric vehicles
¦ Improvements to service and maintenance strategies to ensure vehicles are operating efficiently
¦ Replacing travel with video-conferencing where possible
¦ Encouraging driver behaviour changes – smart driving schemes, monitoring fuel performance etc
¦ Utilising in-vehicle telematics to identify improvements
¦ Improving route and journey scheduling

¦ Business X operates a diesel-only company car fleet travelling 4,500,000 miles a year
¦ The business does not keep records of the size or engine capacity of cars so it assumes an ‘average car’ to obtain an emission conversion factor. The conversion factor is 0.294864008 kg CO2e per mile for an average car
¦ Company X converts the mileage into an emissions figure using an activity-based (mileage) emission conversion factor: 4,500,000 miles x 0.294864008 kg CO2e per mile = 1,326,888 kg CO2e
¦ The business then converts the emissions into energy (in KWh) using a fuel-property emission conversion factor: 1,326,888 kg CO2e/0.26112 kg CO2e per kWh = 5,081,525 kWh
¦ Company X has now converted its expensed mileage into an energy use figure, using a suitable assumption where information was not available.

NB: UK Government conversion factors for company reporting are available to download at http://www.ukconversionfactorscarbonsmart.co.uk/
Source: Department of Energy and Climate Change Energy Savings Opportunity Scheme (ESOS)