Corporate report

Trust statement

Published 18 November 2024

Foreword by the Accounting Officer

The Trust Statement accounts for the income DESNZ collects as an agent of the HMT Consolidated Fund. In 2023-24, DESNZ collected income for the 5 schemes listed below.

EU emissions trading system

EU emissions trading system (EU ETS) is the largest emissions trading system to reduce GHG emissions. It caps the amount of GHG emissions participants can emit and allows trading of allowances so that total emissions stay within the cap. The UK left EU ETS on 31 December 2020, after the end of the transition period. Northern Ireland electricity generators remain in EU ETS by virtue of the Ireland/Northern Ireland Protocol. So, EU ETS remains an income stream.

UK emissions trading scheme

UK Emissions trading scheme (UK ETS) replaced the UK’s participation in the EU ETS on 1 January 2021. The UK ETS caps the total amount of certain GHG that can be emitted by participants. Participants can buy emission allowances at auction or on the secondary market which they can trade with other participants as needed. Participants at risk of carbon leakage receive free allowances.

Carbon reduction commitment

Carbon reduction commitment (CRC) is an energy efficiency scheme, mandatory for large, non-energy intensive organisations. CRC closed at the end of the 2018-19 compliance year to simplify the landscape for energy efficiency tax on businesses. In April 2019, the reporting element of CRC was replaced by the Streamlined Energy and Carbon Reporting (SECR) framework.

Climate change agreements

Climate change agreements (CCA) is a voluntary energy efficiency scheme for businesses in energy intensive sectors. CCA is an agreement to meet stretching targets in exchange for a reduced Climate Change Levy (CCL) of up to 93%. The scheme was launched in April 2013 and runs until 31 March 2025.

Energy saving opportunity scheme

Energy saving opportunity scheme (ESOS) is a mandatory energy assessment scheme for all large organisations in the UK. Qualifying organisations must audit the energy use of their buildings, industrial processes and transport every 4 years, to identify cost-effective energy saving measures. The scheme runs until 5 December 2027. Phase III runs until 5 December 2023.

Governance statement

The department’s governance statement covers the accounts and the Trust Statement.

Auditors

These financial statements have been audited, under the Exchequer and Audit Departments Act 1921, by the Comptroller and Auditor General, who is appointed under statute and reports to Parliament. The audit opinion is on pages 237 to 241. The auditor’s notional remuneration is included within the department’s accounts.

Statement of accounting officer’s responsibilities for the Trust Statement

Under section 2 of the Exchequer and Audit Departments Act 1921, HM Treasury has directed the Department for Energy, Security and Net Zero (DESNZ) to prepare for each financial year a Trust Statement in the form and on the basis set out in the Accounts Direction.

HM Treasury has appointed the Permanent Secretary as Accounting Officer of DESNZ with overall responsibility for preparing the Trust Statement and for transmitting it to the Comptroller and Auditor General.

The Accounting Officer is responsible for ensuring that: there is a high standard of financial management, including a sound system of internal control; that financial systems and procedures promote the efficient and economical conduct of business and safeguard financial propriety and regularity; that financial considerations are fully taken into account in decisions on policy proposals; and that risk is considered in relation to assessing value for money.

The Accounting Officer is responsible for the fair and efficient administration of the EU ETS and UK ETS including conducting the auction of the Allowances, collection of the proceeds and onward transmission of the funds in their entirety to the Consolidated Fund.

The Accounting Officer is also responsible for the collection of CRC Allowances and CCA buy-out payments for onward transmission to the Consolidated Fund, and the collection of civil penalties levied under the EU ETS, UK ETS, CCA, CRC and ESOS schemes for onward transmission to the Consolidated Fund.

The responsibilities of the Accounting Officer, including responsibility for the propriety and regularity of the public finances for which an Accounting Officer is answerable, for keeping proper records and for safeguarding the department’s assets, are set out in Managing Public Money published by HM Treasury.

The Trust Statement must give a true and fair view of:

• the statement of affairs of the EU ETS, UK ETS, CCA Schemes and penalties issued under the EU ETS, UK ETS, ESOS, CCA and CRC Schemes. These streams of income are recognised on an accruals basis
• the state of affairs of the CRC Allowance Scheme sales which are recognised on a cash received basis
• the revenue collected and expenditure incurred, together with the net amounts surrendered to the Consolidated Fund

In preparing the Trust Statement, the Accounting Officer is required to comply with the requirements of the government Financial Reporting Manual and in particular to:

• observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis
• make judgements and estimates on a reasonable basis
• state whether applicable accounting standards as set out in the government Financial Reporting Manual have been followed, and disclose and explain any material departures in the accounts
• prepare the Trust Statement on a going concern basis

Accounting Officer’s confirmation

As the Accounting Officer, I have taken all the steps that I ought to have taken to make myself aware of any relevant audit information and to establish that the department’s auditors are aware of that information. So far as I am aware, there is no relevant audit information of which the auditors are unaware. The annual report and accounts as a whole is fair, balanced and understandable. I take personal responsibility for the annual report and accounts and the judgements required for determining that it is fair, balanced and understandable.

Jeremy Pocklington
Permanent Secretary and Principal Accounting Officer

6 November 2024

The Report of the Comptroller and Auditor General to the House of Commons

Opinion on financial statements

I have audited the financial statements of the Department for Energy Security and Net Zero Trust Statement (‘the Trust Statement’) for the year ended 31 March 2024 under the Exchequer and Audit Departments Act 1921.

The financial statements comprise: the Trust Statement’s

• Statement of Financial Position as at 31 March 2024
• Statement of revenue, other income and expenditure, and Statement of Cash Flows for the year then ended; and
• the related notes including the significant accounting policies

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and UK adopted international accounting standards.

In my opinion, the financial statements:

• give a true and fair view of the state of the Trust Statement’s affairs as at 31 March 2024 and its net revenue for the Consolidated Fund for the year then ended; and
• have been properly prepared in accordance with the Exchequer and Audit Departments Act 1921 and HM Treasury directions issued thereunder

Opinion on regularity

In my opinion, in all material respects, the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis for opinions

I conducted my audit in accordance with International Standards on Auditing (UK) (ISAs UK), applicable law and Practice Note 10 ‘Audit of Financial Statements and Regularity of Public Sector Bodies in the United Kingdom (2022)’. My responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of my report.

Those standards require me and my staff to comply with the Financial Reporting Council’s ‘Revised Ethical Standard 2019’. I am independent of the Trust Statement in accordance with the ethical requirements that are relevant to my audit of the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements.

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern

In auditing the financial statements, I have concluded that the Trust Statement’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work I have performed, I have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Trust Statement’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

My responsibilities and the responsibilities of the Accounting Officer with respect to going concern are described in the relevant sections of this Report.

The going concern basis of accounting for the Trust Statement is adopted in consideration of the requirements set out in HM Treasury’s government Financial Reporting Manual, which requires entities to adopt the going concern basis of accounting in the preparation of the financial statements where it is anticipated that the services which they provide will continue into the future.

Other information

The other information comprises information included in the Performance Report, Accountability Report and Foreword to the Trust Statement, but does not include the financial statements and my auditor’s report thereon. The Accounting Officer is responsible for the other information.

My opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in my report, I do not express any form of assurance conclusion thereon.

My responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit, or otherwise appears to be materially misstated.

If I identify such material inconsistencies or apparent material misstatements, I am required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact.

I have nothing to report in this regard.

Opinion on other matters

In my opinion the part of the Remuneration and Staff Report to be audited has been properly prepared in accordance with HM Treasury directions issued under the Exchequer and Audit Departments Act 1921.

In my opinion, based on the work undertaken in the course of the audit:

• the parts of the Accountability Report subject to audit have been properly prepared in accordance with HM Treasury directions issued under the Exchequer and Audit Departments Act 1921
• the information given in the Performance and Accountability Reports and the Foreword to the Trust Statement for the financial year for which the financial statements are prepared is consistent with the financial statements and is in accordance with the applicable legal requirements

Matters on which I report by exception

In the light of the knowledge and understanding of the Trust Statement and its environment obtained in the course of the audit, I have not identified material misstatements in the Performance and Accountability Reports or the Foreword to the Trust Statement.

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

• adequate accounting records have not been kept by the Trust Statement or returns adequate for my audit have not been received from branches not visited by my staff; or
• I have not received all of the information and explanations I require for my audit; or
• the financial statements and the parts of the Accountability Report subject to audit are not in agreement with the accounting records and returns; or
• certain disclosures of remuneration specified by HM Treasury’s government Financial Reporting Manual have not been made or parts of the Remuneration and Staff Report to be audited is not in agreement with the accounting records and returns; or
• the Governance Statement does not reflect compliance with HM Treasury’s guidance

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the Accounting Officer is responsible for:

• maintaining proper accounting records
• providing the C&AG with access to all information of which management is aware that is relevant to the preparation of the financial statements such as records, documentation and other matters
• providing the C&AG with additional information and explanations needed for his audit
• providing the C&AG with unrestricted access to persons within the Trust Statement from whom the auditor determines it necessary to obtain audit evidence
• ensuring such internal controls are in place as deemed necessary to enable the preparation of financial statements to be free from material misstatement, whether due to fraud or error
• preparing financial statements which give a true and fair view and are in accordance with HM Treasury directions issued under the Exchequer and Audit Departments Act 1921
• preparing the annual report, which includes the Remuneration and Staff Report in accordance with HM Treasury directions issued under the Exchequer and Audit Departments Act 1921; and
• assessing the Trust Statement’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Accounting Officer anticipates that the services provided by the Trust Statement will not continue to be provided in the future

Auditor’s responsibilities for the audit of the financial statements

My responsibility is to audit, certify and report on the financial statements in accordance with the Exchequer and Audit Departments Act 1921.

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes my opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

Extent to which the audit was considered capable of detecting non-compliance with laws and regulations, including fraud

I design procedures in line with my responsibilities, outlined above, to detect material misstatements in respect of non-compliance with laws and regulations, including fraud. The extent to which my procedures are capable of detecting non-compliance with laws and regulations, including fraud is detailed below.

Identifying and assessing potential risks related to non-compliance with laws and regulations, including fraud

In identifying and assessing risks of material misstatement in respect of non-compliance with laws and regulations, including fraud, I:

• considered the nature of the sector, control environment and operational performance including the design of the Trust Statement’s accounting policies
• inquired of management, and those charged with governance, including obtaining and reviewing supporting documentation relating to the Trust Statement’s policies and procedures on:
  • identifying, evaluating and complying with laws and regulations
  • detecting and responding to the risks of fraud; and
  • the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations including the Trust Statement’s controls relating to the Trust Statement’s compliance with the Exchequer and Audit Departments Act 1921, and Managing Public Money
• inquired of management, and those charged with governance whether:
  • they were aware of any instances of non-compliance with laws and regulations
  • they had knowledge of any actual, suspected, or alleged fraud
• discussed with the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.

As a result of these procedures, I considered the opportunities and incentives that may exist within the Trust Statement for fraud and identified the greatest potential for fraud in the following areas: revenue recognition, posting of unusual journals, and complex transactions. In common with all audits under ISAs (UK), I am required to perform specific procedures to respond to the risk of management override.

I obtained an understanding of the Trust Statement’s framework of authority and other legal and regulatory frameworks in which the Trust Statement operates. I focused on those laws and regulations that had a direct effect on material amounts and disclosures in the financial statements or that had a fundamental effect on the operations of the Trust Statement. The key laws and regulations I considered in this context included Exchequer and Audit Departments Act 1921, Managing Public Money, the Greenhouse Gas Emissions Trading Scheme Order 2020 and the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021.

Audit response to identified risk

To respond to the identified risks resulting from the above procedures:

• I reviewed the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described above as having direct effect on the financial statements;
• I enquired of management, the Audit and Risk Committee concerning actual and potential litigation and claims;
• I reviewed minutes of meetings of those charged with governance and the Board; and internal audit reports;
• I addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and other adjustments; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business; and

I communicated relevant identified laws and regulations and potential risks of fraud to all engagement team members and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

A further description of my responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of my certificate.

Other auditor’s responsibilities

I am required to obtain sufficient appropriate audit evidence to give reasonable assurance that the expenditure and income recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control I identify during my audit.

Report

I have no observations to make on these financial statements.

Gareth Davies
Comptroller and Auditor General

13 November 2024

National Audit Office
157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP

Statement of revenue, other income and expenditure

for the period ended 31 March 2024

	Note	2023‑24 £’000	2022‑23 £’000
Revenue: License fees and taxes - EU ETS auction income	2.1	68,240	57,003
Revenue: License fees and taxes - UK ETS auction income	2.1	3,407,068	6,048,951
Revenue: License fees and taxes - CRC allowance sales	2.1	-	(191)
Revenue: License fees and taxes - CCA buy-out payments income	2.1	45,314	47
Total licence fees and taxes	-	3,520,622	6,105,810
Fines and penalties: Civil penalties – EU ETS	-	31,172	46,658
Fines and penalties: Civil penalties – ESOS	-	667	1,514
Fines and penalties: Civil penalties – CRC	-	2	2
Fines and penalties: Civil penalties – CCA	-	2	2
Total fines and penalties	2.2	31,843	48,176
Total revenue and other income	-	3,552,465	6,153,986
Expenditure: Foreign exchange and interest – EU ETS	3.1	(11)	(157)
Expenditure: Credit losses – debts written off	3.2	-	39,035
Total expenditure	-	(11)	38,878
Net revenue for the Consolidated Fund	-	3,552,476	6,115,108

The notes on pages 244 to 250 form part of this statement.

Statement of Financial Position

as at 31 March

	Note	2023‑24 £’000	2022‑23 £’000
Current assets: Receivables and accrued fees	4	12,642	11,123
Current assets: Cash and cash equivalents	5	40,780	37,939
Total current assets	-	53,422	49,062
Current liabilities: Payables	6	2,836	634
Total current liabilities	-	2,836	634
Net current assets	-	50,586	48,428
Total net assets Represented by: Balance on Consolidated Fund Accounts	-	50,586	48,428

The notes on pages 244 to 250 form part of this statement.

Statement of Cash Flows

for the period ended 31 March

	Note	2023‑24 £’000	2022‑23 £’000
Net cash flows from operating activities	A	3,553,159	6,114,597
Cash paid to the Consolidated Fund	7	(3,550,318)	(6,106,124)
Increase/(decrease) in cash in this period	B	2,841	8,473

Notes to the Statement of Cash Flows

A: Reconciliation of Net Cash Flow to Movement in Net Funds

	Note	2023‑24 £’000	2022‑23 £’000
Net Revenue for the Consolidated Fund	7	3,552,476	6,115,108
(Increase)/decrease in receivables and accrued fees	4	(1,519)	(774)
Increase/(decrease) in payables	6	2,202	263
Net cash flows from operating activities	-	3,553,159	6,114,597

B: Analysis in changes in Net Funds

	Note	2023‑24 £’000	2022‑23 £’000
Increase/(decrease) in cash in this period	-	2,841	8,473
Net Funds as at 1 April (net cash at bank)	5	37,939	29,466
Net Funds as at 31 March (closing balance)	5	40,780	37,939

Notes to the Trust Statement

1. Accounting policies

1.1 Basis of accounting

The Trust Statement is prepared in accordance with the accounts direction issued by HM Treasury under section 2 of the Exchequer and Audit Departments Act 1921. The Trust Statement is prepared in accordance with the accounting policies detailed below. These have been agreed between DESNZ (the department) and HM Treasury and have been developed in accordance with International Financial Reporting Standards (IFRS) and other relevant guidance. The accounting policies have been applied consistently in dealing with items considered material in relation to the accounts.

The income and associated expenditure contained in the departmental Trust Statement are those flows of funds which the department administers on behalf of the Consolidated Fund.

The financial information in the Trust Statement is rounded to the nearest £’000.

The Trust Statement is presented in pounds sterling, which is the functional currency of the department.

1.2 Accounting convention

The Trust Statement has been prepared in accordance with the historical cost convention.

1.3 Revenue recognition

The FReM extends the definition of a contract under IFRS 15 para 9 to include legislation and regulations which enable an entity to obtain revenue that is not classified as a tax by the Office of National Statistics (ONS). As EU ETS auction income, UK ETS auction income and CRC allowances sales are classified as taxes by ONS, and CCA income meets the definition of a tax under ONS’s guidance, IFRS 15 is not applicable to the revenue streams of the DESNZ Trust Statement.

Income from these schemes is recognised as follows:

• EU ETS receipts represent proceeds from the auction of carbon allowances. Revenue is recognised at the close of each competitive auction, when the revenue can be measured reliably
• UK ETS receipts represent proceeds from the auction of carbon allowances. Revenue is recognised at the close of each competitive auction, when the revenue can be measured reliably
• Revenue in respect of CCA buy-out payments is recognised on an accruals basis, albeit the recognition point is when the income is received
• Revenue in respect of civil penalties is recognised when the penalty is imposed

All result in a cash flow to the Consolidated Fund. This has resulted in no difference to the income recognition methodology applied in previous years.

CRC participants may request refunds for over-surrendered allowances (note 9 Contingent Liabilities refers). These are accounted for in the period in which the refund request is authorised and processed.

1.4 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities are recognised in the Statement of Financial Position when the department becomes a party to the contractual provisions of an instrument.

1.5 Financial assets

For the purposes of this Trust Statement, the department holds financial assets in the following categories:

• receivables held at amortised cost
• cash and cash equivalent held at amortised cost

Receivables held at amortised cost comprise:

• for EU ETS and UK ETS the amounts due from primary participants in respect of established auction liabilities for which, at the financial year end, payments had not been received. The amounts due are calculated at the close of each auction and have a maturity of less than 3 months
• civil penalties levied against participants in the EU ETS, UK ETS, ESOS, CCA and CRC schemes, amounts for which have not been received at the financial year end

Cash and cash equivalents comprise current balances with banks and other financial institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value and have an original maturity of 3 months or less.

1.6 Financial liabilities

For the purposes of this Trust Statement the department holds financial liabilities in the following category:

• Other financial liabilities – which comprise - Payables in the Statement of Financial Position. Payables are amounts established as due at the reporting date, but where payment is made subsequently. Since these balances are expected to be settled within 12 months of the reporting date there is no material difference between fair value, amortised cost and historical cost

1.7 Foreign currency

Transactions that are denominated in a foreign currency are translated into sterling at the rate of exchange ruling on the date of each transaction. Monetary assets and liabilities denominated in foreign currency at the year-end are translated at the rates ruling at that date unless a forward rate has been fixed with the Bank of England. All translation differences are included in the Statement of Revenue, Other Income and Expenditure for the period.

2. Revenue

2.1 Revenue

	2023‑24 £’000	2022‑23 £’000
EU ETS - auctions income	68,240	57,003
UK ETS – auctions income	3,407,068	6,048,951
CRC - allowance sales	-	(191)
CCA - buy-out payment income receivable	45,315	47
Total	3,520,623	6,105,810

EU ETS

Auction dates and units auctioned for EUA Phase III are available on The European Energy Exchange (EEX) website on the auction calendar link at: www.eex.com/en/market-data/environmental-markets/eua-primary-auction-spot-download

UK ETS

Auction dates for UK Emission Allowances are available on the Intercontinental Exchange website at: www.theice.com/emissions/auctions/uk-emission-allowances

CCA

In 2023-24, the income from buy-out payments generated £45.3 million (2022–23: £47,310). This increase is due to 2023-24 being the primary reporting period income for Target Reporting Period V.

2.2 Revenue from civil penalties

	2023‑24 Number of penalties	2023‑24 Revenue before adjustments and refunds[Note 1] £’000	2023‑24 Revenue £’000	2022‑23 Number of penalties	2022‑23 Revenue £’000
Levied under EU ETS	383	31,672	31,172	153	46,658
Levied under CRC	1	2	2	1	2
Levied under CCA	1	2	2	3	2
Levied under ESOS	1	2	667	89	1,514
Total	386	31,678	31,843	246	48,176

Notes:

1. Revenue before adjustments and refunds in relation to prior years

3. Expenditure and disbursements

3.1 Costs incurred in the collection of receipts

	2023‑24 £’000	2022‑23 £’000
Foreign currency translation (gains)/losses - EU ETS	(11)	(157)
Total	(11)	(157)

3.2 Credit losses

	2023‑24 £’000	2022‑23 £’000
De-recognition of EU ETS penalties	-	37,639
Impairment of doubtful debts during the year	-	1,396
Total	-	39,035

Expenditure incurred to administer the schemes are provided below. These costs are included in the DESNZ accounts because there is no express statutory provision to deduct them from the revenue collected and paid to the Consolidated Fund.

	2023‑24 £’000	2022‑23 £’000
EU ETS	288,629	293,673
UK ETS	2,112,970	1,837,085
CRC	TBC	76,677
CCA	TBC	370,025
ESOS	TBC	1,102,727

4. Receivables and accrued fees

	2023‑24 £’000	2022‑23 £’000
Civil Penalties receivable	12,642	11,123
Total	12,642	11,123

5. Cash and cash equivalents

	2023‑24 £’000	2022‑23 £’000
Balance as at 1 April	37,939	29,466
Net change in cash and cash equivalent balances	2,841	8,473
Balance at 31 March 2024	40,780	37,939
The following balances at 31 March were held at: Government Banking Service	40,780	37,939
Total	40,780	37,939

6. Payables

	2023‑24 £’000	2022‑23 £’000
Other	2,836	634
Total	2,836	634

7. Balance on the Consolidated Funds accounts

	2023‑24 £’000	2022‑23 £’000
Balance on the Consolidated Fund as at 1 April	48,428	39,444
Net revenue for the Consolidated Fund	3,552,476	6,115,108
Less amounts paid to the Consolidated Fund	(3,550,318)	(6,106,124)
Balance on the Consolidated Fund as at 31 March	50,586	48,428

8. Financial instruments

8.1 Classification and categorisation of financial instruments

	2023‑24 £’000	2022‑23 £’000
Financial assets: - Cash	40,780	37,939
Financial assets: - Civil penalties receivable	12,642	11,123
Total financial assets	53,422	49,062
Financial liabilities: - Other Payables	(2,836)	(634)
Total financial liabilities	(2,836)	(634)

8.2 Risk exposure to financial instruments

EU ETS

EU ETS is exposed to foreign currency risk due to the timing difference in recognising proceeds at the auction and converting proceeds into sterling one day after the close of the auction. This results in either an exchange loss or gain. As shown in note 3.1 there was an exchange rate gain of £11,266 incurred as at 31 March 2024 (31 March 2023: gain of £157,000).

EU ETS is not exposed to interest rate or liquidity risk. It’s exposure to market risk is limited due to there being a current demand for carbon allowances. Civil penalties are subject to credit risk. The level of credit risk varies depending on the level of penalties being issued, and increases when they relate to entities in administration.

UK ETS

UK ETS is not exposed to foreign currency risk, interest rate or liquidity risk. It’s exposure to market risk is limited due to there being a current demand for carbon allowances.

CCA

CCA buy-out payment revenue is subject to credit risk, but this risk is assessed by management as low, due to the nature of participants in the scheme. All fees under the regime are received in sterling minimising any other risks.

Information to help evaluate the significance of financial instruments on the department’s financial performance and position and the nature and extent of the department’s exposure to other risks can be found in note 21 to the department’s accounts.

9. Contingent liability

CRC

A contingent liability exists for refunds the department may have to pay to CRC participants who have over-surrendered allowances. This is as a result of legislation included in the CRC Order 2013. The refunds are contingent upon participants being able to prove the over-surrender was due to a reporting error and must be agreed by the Secretary of State.

The department is unable to quantify the amount of future refunds but based on the most recent information available from the scheme administrators, the refunds are not expected to be significant. Future refunds will be paid as and when they fall due out of future scheme receipts.

CCA

A contingent liability exists in the secondary reporting phase of each Target Reporting Period. This is where a participant has undergone review or audit procedures and it is deemed they have overpaid. Thus, the participant is due a refund. The department must retain sufficient funds to cover these refunds.

10. Events after the reporting period

There are no events after the reporting period to report on.

11. Date accounts authorised for issue

The Accounting Officer has authorised these accounts to be issued on the same day as they were certified.

Annexes to the Trust Statement

Annex D

Accounts Direction given by HM Treasury in accordance with Section 2 of the Exchequer and Audit Departments Act 1921

1. This direction applies to those government departments listed in appendix 2.

2. The department shall prepare a Trust Statement (‘the Statement’) for the financial year ended 31 March 2024 for the revenue and other income, as directed by the Treasury, collected by the department as an agent for others, in compliance with the accounting principles and disclosure requirements of the edition of government Financial Reporting Manual (FReM) 2023-24.

3. The Statement shall be prepared, as prescribed in appendix 1, so as to give a true and fair view of (a) the state of affairs relating to the collection and allocation of taxes, licence fees, fines and penalties and other income by the department as agent and of the expenses incurred in the collection of those taxes, licence fees, fines and penalties insofar as they can properly be met from that revenue and other income; (b) the revenue and expenditure; and (c) the cash flows for the year then ended.

4. The Statement shall also be prepared so as to provide disclosure of any material expenditure or income that has not been applied to the purposes intended by Parliament or material transactions that have not conformed to the authorities which govern them.

5. When preparing the Statement, the department shall comply with the guidance given in the FReM (Chapter 11). The department shall also agree with HM Treasury the format of the Principal Accounting Officer’s Foreword to the Statement, and the supporting notes, and the accounting policies to be adopted, particularly in relation to revenue recognition. Regard shall also be given to all relevant accounting and disclosure requirements in Managing Public Money and other guidance issued by HM Treasury, and to the principles underlying International Financial Reporting Standards.

6. Compliance with the requirements of the FReM will, in all but exceptional circumstances, be necessary for the accounts to give a true and fair view. If, in these exceptional circumstances, compliance with the requirements of the FReM is inconsistent with the requirement to give a true and fair view, the requirements of the FReM should be departed from only to the extent necessary to give a true and fair view. In such cases, informed and unbiased judgement should be used to devise an appropriate alternative treatment which should be consistent with both the economic characteristics of the circumstances concerned and the spirit of the FReM. Any material departure from the FReM should be discussed in the first instance with HM Treasury.

7. The Statement shall be transmitted to the Comptroller and Auditor General for the purpose of his examination and report by a date agreed with the Comptroller and Auditor General and HM Treasury to enable compliance with the administrative deadline for laying the audited accounts before Parliament.

8. The Statement, together with this direction (but with the exception of the related appendices) and the Report produced by the Comptroller and Auditor General under section 2 of the Exchequer and Audit Departments Act 1921 shall be laid before Parliament at the same time as the department’s resource accounts for the year unless the Treasury have agreed that the Trust Statement may be laid at a later date.

Charlotte Goodrich
Deputy Director, Government Financial Reporting
His Majesty’s Treasury
14 December 2023

Appendix 1 to annex D

Trust Statement for the year ended 31 March 2024

1. The Trust Statement shall include:

• a Foreword by the Principal Accounting Officer
• a Statement of the Principal Accounting Officer’s Responsibilities
• a Governance Statement
• a Statement of Revenue, Other Income and Expenditure
• a Statement of Financial Position
• a Cash Flow Statement
• such notes as may be necessary to present a true and fair view

2. The Notes shall include among other items:

• the accounting policies, including the policy for revenue recognition and estimation techniques and forecasting techniques together with statements explaining any significant uncertainty surrounding estimates and forecasts
• a breakdown of material items within the accounts
• any assets, including intangible assets and contingent liabilities
• summaries of losses, write-offs and remissions
• post balance sheet events
• any other notes agreed with HM Treasury and the National Audit Office

Appendix 2 to annex D

Sponsoring department: Department for Energy, Security and Net Zero

Income stream	Responsible entity
UK Emissions Allowance	DESNZ
EU Emissions Allowance	DESNZ
Fines and Penalties	DESNZ
CRC allowances	DESNZ
Climate Change Agreements	DESNZ
Energy Saving Opportunity Schemes	DESNZ

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