In July 2023, Energy Systems Catapult kicked off a two-year project that aims to set out how the concept of a Carbon Regulator could be brought to life. As part of the cross-Catapult Carbon Accounting Programme, funded by Innovate UK and led by the High Value Manufacturing Catapult, we are aiming to answer the question:

What does regulatory oversight for carbon accounting and emissions data look like in a Net Zero economy?

The Challenge

Reliable and trustworthy emissions data will be essential to the functioning of a Net Zero economy.

Some carbon accounting regulations and regulators already exist, for example, the Environment Agency is responsible for the UK Emissions Trading Scheme (UK ETS). But such regulators are disparate and specific to individual policy mechanisms.

There is currently an absence of regulatory oversight for carbon accounting and the monitoring, reporting, and verification (MRV) of emissions to provide this consistently economy-wide.

Proposed Solution

We propose the introduction of an independent Carbon Regulator, economy-wide in scope, for carbon accounting and MRV. A Carbon Regulator would be an independent body, either set up as a new institution, or by extending the mandate of an existing organisation, or it could be a group of bodies working together in a more coherent way.

Regulatory oversight provides clarity, and innovation-friendly regulation can ensure a level playing field for innovators, cut investment risks, and build business and consumer confidence. It can also support:

• Streamlined Reporting – disclosing once reduces the administrative burden of reporting emissions. Doing so also establishes a single source of truth to be propagated for different carbon accounting use cases (e.g. Life Cycle Assessments and Corporate Reporting). This can only be enabled by the regulation of data best practice and the effective coordination of digitalised reporting and accounting software.
• Credibility of Emissions Data – regulation can help maintain the integrity of a system, while driving demand for credible emissions. This has advantages such as:
  • Providing investors with confidence that the decarbonisation projects they support have a material effect on emissions reduction.
  • Supporting the third-party verification of emissions disclosures.
  • Standardising reporting methodologies where appropriate.
  • Assuring that all carbon accounting that takes place adheres to an agreed set of principles.
• Transition to Improved Emissions Data – over time, regulation can improve access for SMEs and other consumers of emissions data to more comparable and complete emissions data. During the transition, regulation can also safeguard organisations from unjust penalisation for gaps in their emissions data, while encouraging a shift towards improved emissions inventories.
• A Level Playing Field for Competition – independent regulation can mitigate conflicting claims between sectors that provide different products, but serve the same function (e.g., construction materials). In addition to providing customer guidance, this can promote fairer competition and help businesses and sectors identify where best to target innovation to support Net Zero.

Project Aims

With a focus on heavy industry and manufacturing, we intend to answer the following questions:

• How would a Carbon Regulator work with/support existing, policy specific regulators (e.g., Environment Agency) and support the UK Government’s Net Zero Strategy?
• What would the MRV remit be (e.g., verification, proxy values, default values, emissions factors)?
• How would a Carbon Regulator support the development of new standards (e.g., in carbon accounting, data management)?
• How would a Carbon Regulator be independent?

We will do this by:

In the first year:

• Identify the principles of good regulation, drawing on insights from existing regulatory practices in the energy, environment, and finance sectors.
• Understand the existing landscape of carbon accounting regulation.
• Explore the international considerations for regulation.

In the second year:

• Identify the practicalities of operationalising a Carbon Regulator, including roles and responsibilities, to propose steps towards implementation.