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1 1 1 CLIMATE CHANGE GOVERNANCE AND COMPLIANCE N.K. Tovey ( ) M.A, PhD, CEng, MICE, CEnv Н.К.Тови М.А., д-р технических наук Recipient of James Watt Gold.

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Presentation on theme: "1 1 1 CLIMATE CHANGE GOVERNANCE AND COMPLIANCE N.K. Tovey ( ) M.A, PhD, CEng, MICE, CEnv Н.К.Тови М.А., д-р технических наук Recipient of James Watt Gold."— Presentation transcript:

1 1 1 1 CLIMATE CHANGE GOVERNANCE AND COMPLIANCE N.K. Tovey ( ) M.A, PhD, CEng, MICE, CEnv Н.К.Тови М.А., д-р технических наук Recipient of James Watt Gold Medal 1 NBS-M017/NBSLM04D 2013 Carbon Reduction Commitment – Energy Efficiency Scheme

2 2 Course WEB Page or

3 33 CLIMATE CHANGE GOVERNANCE AND COMPLIANCE Carbon Reduction Commitment - Handout 1: Powerpoint 1 - Energy Efficiency Scheme Building Regulations - Handout 1: Powerpoint 2 – Code for Sustainable Homes Regulation in Electricity Supply - Handout 2: Powerpoint 3 –NETA/BETTA Issues of Diversity, Triad Demand Renewable Electricity Options –Renewable Obligation –Feed-in Tariffs –Renewable Heat Incentive Electricity Market Reform The Renewable Transport Fuel Obligation? The Future: Integrated Obligations? Tour of Low Carbon Energy at UEA Covered over 5 sessions: 2 nd /9 th /16 th /28 th October & 6 th November

4 4 Carbon Reduction Commitment – Energy Efficiency Scheme A new emissions trading system which affects ~ organisations in the UK ~ 5000 organisations will fully participate in trading, remainder will only have to report emissions. Criteria for inclusion is based on electricity use. At least one Half-hour Meter (HHM) and an annual consumption > 6000 MWh [ annual consumption ~ equivalent to 1500 houses] If an organisation satisfies first criterion then they merely have to report. CRC split into Phases Phase 1 (Introductory) will have a fixed price of CO 2 allowances at £12 per tonne Originally Phase 2 and subsequent Phases allowances would be auctioned In last 12 months many changes have occurred including use of fixed price allowances in Phase 2 also.

5 5 Organisational Chart to determine whether an organisation qualifies for inclusion in CRC All subsidiaries must initially be counted – however, some may subsequently be exempted if they participate in EU-ETS or have Climate Change Agreements. In recent months there have been simplification and clarification as to exactly what should be included.

6 6 The Carbon Reduction Commitment Periods The CRC – EES is divided into phases, each of which is 3 or more years Within each phase there will be: A qualification period, Organisations must assess whether or not they qualify to make an information disclosure or participate fully in CRC A registration period, Organisations must either submit their information disclosure or register as a participant with the administrator A footprint year, participants must monitor their total emissions from energy use. Note some emissions are excluded such as those already covered by EU-ETS etc. A series of compliance years, runs from April to March – first starting in April 2011, participating organisations must purchase allowances for each tonne of CO2 they have emitted in previous year. Note this is a change from previously when they had to purchase allowances at start of year on estimated emissions for year. monitor their usage.

7 7 The Qualification Period for Phase 1 was 2008 when initial assessments were made The Registration period, for Phase 1 was April 1 st – September 30th 2010 issues of exemption/ allowable deductions must be addressed e.g. Transport - originally had to be included and then deducted –Any electricity used solely for motive power can be deducted and if this lowers the total consumption to less than 1000 MWh per annum then an exemption for the duration of the phase applies. Climate Change Agreement – original statement –If an organisation has more than 25% of emission covered by a CCA then the whole of its emissions are exempt for the duration of the phase. However, all the emissions must be reported - Clarification of this within simplification EU-ETS –Any emissions covered by EU-ETS are deducted from total emissions to determine the emissions for which CRC participation is needed. However, all emissions including those under EU-ETS must be reported Energy supplied to another party –Emissions arising from energy supplied to another organisation are deducted from total emissions except in those cases where generation is from Renewable Energy and ROCs are claimed. Special Arrangements Apply Qualification and Registration Periods

8 8 Footprint and Compliance Years Footprint Year in Phase 1 is April 1 st 2010 – March 31 st 2011 –with report due July 2011 Compliance Year (Year 1) As originally planned to start April 1 st 2011 –April 2011 Purchase of expected allowances for 2011 – 12 (Year 2) –Reporting for year 0 (i.e. Footprint Year) to be done by July 2011 no surrender of allowances –Recycling of 2011/2012 Payments based on Year 0 performance (i.e / 2011) – October 2011 – Original Recycling Scheme will be discussed later –Trading of allowances was possible if one had a surplus or use of Safety Valve System if there was a shortage Compliance Year (Year 1) as actually operating started April 1 st 2011 –April 2011 start of compliance year 2011 – 12 - no purchase at this stage –Reporting for year 1 was done in July 2011 –No recycling of allowances as none had been purchased

9 9 Footprint and Compliance Years Compliance Year (Year 2) from April 1 st 2012 as originally planned –April 2012: Purchase of expected allowances for 2012 – 13 (Year 3) –Reporting for compliance year 1 to be done by July 2012 with surrender of allowances –Recycling of 2012/2013 Payments based on Year 2 performance (i.e / 2012) would have occurred in October Best performing companies get a bonus worst performing ones incur a penalty –Trading of allowances/ use of Safety Valve Procedure –This year was also to be Footprint year for Phase 2 starting April 2013 Compliance Year (Year 2) from April 1 st 2012 as in simplified procedure April 2012: Purchase of allowances RETROSPECTIVELY for 2011 – 12 at a fixed price of £12 per tonne –Reporting for compliance year 1 to be done by July 2012 –No Recycling of Payments - in essence this become a simple Tax on emissions. –No opportunity for trading –As whole demand is satisfied - No need for Safety Valve Procedure. –Start of Phase 2 delayed

10 10 Qualification Period Participants with at least one HH meter should determine total electricity consumption EA sends out qualification packs to all half-hour billing points Registration Period CRC Scheme Begins start of footprint year Start of Compliance Year 2 Sale of 1 st Allowances to cover forecast 2011/12 emissions 1 st Recycling Payment 2nd Recycling Payment Start of Compliance Year 3 Sale of Allowances to cover forecast 2012/13 Footprint Report due 1 st 1 st Annual Report Due 2 nd Annual Report Due Allowances surrendered Start of Capped Phase CRC Timeline as originally proposed in st Recycling Payment based on performance in 2010/2011 2nd Recycling Payment based on performance in 2011/2012

11 Phase 1 Phase 2 Phase 3 Phases of CRC Energy Efficiency Scheme - Reporting Footprint Year Report Only Reports due last working day of July Reporting, purchase and surrender of allowances In further simplification purchase of allowances now done retrospectively for 2011/2012 in June 2012 for surrender in July 2012 and in equivalent times for 2013/14

12 All Energy Use Emissions Relevant Emissions 12 Calculating Emissions to be included in CRC -EES Total Footprint Emissions Regulated Emissions CRC Emissions MUST: Remove all Emissions covered by CCA and EU-ETS CAN: remove up to 10% of emissions, but not if measured by regulated meters or covered by CCA/ EU-ETS. MUST: account for at least 90% of emissions MUST: remove emissions from exempted transport and onward Supply MUST: remove 100% of emissions covered by CCA exempt subsidiaries Original Proposal

13 13 All Energy Use Emissions Exclude all energy use for domestic accommodation, transport and unconsumed supply. Exclude also all emissions covered by CCA and EU-ETS. Special considerations apply for kerosene and diesel when used for heating CRC Emissions Simplified Method for Calculating Emissions to be included in CRC -EES In 2013 further simplifications excluded kerosene and diesel and furthermore the requirements relating to CRC emissions were further simplified.

14 14 Purchase of Allowances: Phase 1 During phase 1 an unlimited number of allowances will be issued, originally these had to be purchased in advance on estimated emissions – now done retrospectively. During phase 2 there originally was going to be a cap on total emissions in Phase 2. In the simplification it is now intended that unlimited allowances will be available. Originally: All Allowances would be purchased in April for following year relevant year at a FIXED cost of £12 per tonne in Phase 1 (although now subject to annual review). Now purchased at end of year. Originally: Additional allowances would have been available for purchase on the Secondary Market from other participants (or traders) who found they had a surplus. Now irrelevant om Phase 1 as retrospective purchases are made Originally: Additional allowances can also be purchased through the Safety Valve System which is analogous to the Buy Out Prices for ROCs. Now irrelevant in Phase 1as retrospective purchase are made

15 15 Purchase of Allowances: Phase 2 etc Original System for Phase 2 and thereafter – may now be used from Phase 3 Number of allowances issued in initial allocation would be capped consistent with Government Policy for reducing carbon emissions. All Allowances would be purchased in April for the forthcoming year through a bidding process – see next slide. There would be a maximum percentage that any one participant can bid. Participants may bid for different quantities at different prices. A Safety Value linked to EU – ETS would operate to cover any shortages Revised System for Phase 2: Unlimited Supply of Allowances: Two periods of purchase: 1) In April at start of year – e.g. April 2014 for , allowances will be available for purchase on estimated emissions 2) In April immediately following year – i.e. April 2015 for Prices in second sale will be higher than in first There will be an opportunity for trading on Secondary Market No need for Safety Valve

16 16 Purchase of Allowances under an auctioning system: which still may be used in Phase 3 Government will count bids until they meet cap limit to determine a Clearing Price All Companies with bids which are counted i.e. above the Clearing Price will be issued at the Clearing Price irrespective of the actual bid price. In example: All companies up to and including Company B will be successful. Companies C and D and those bidding less than £20.75 would get no allowances. All successful companies would pay £20.79 per tonne – Analogous to the bidding process in the Electricity Pool in 1990s (see notes on Electricity Regulation) tonnes from companies bidding above £25 per tonne tonnes from companies bidding £22 - £ tonnes from companies bidding £21 - £22 Company A £20.85: tonnes Company B £20.79: tonnes Company C £20.78: tonnes Company D £20.75: tonnes Target 60, 200,000 tonnes Companies bidding < £20.75

17 17 Purchase of Allowances: Phase 2 etc – original scheme Banking of Allowances Allowances surplus to an organisations needs can be sold on the Secondary Market or banked against future years. However, it was not possible to carry forward banked allowances between phases. This has not changed following the Simplifications Operation of Safety Valve - No longer relevant until Phase 3? AIM: To prevent price volatility in Secondary Market (as happened in Phase 1 of EU-ETS) If there are insufficient allowances in an auctioned system Participants can request operation of Safety Valve and pay a deposit equal to prevailing Safety Valve price in preceding month. Government purchases extra allowances on EU-ETS and cancels same number of EU-ETS allowances. Participants reimburse Government (or receive a rebate) for an difference between deposit price and actual price subject to a minimum price of £14 (revised upwards from £12 – February 2010)

18 Issues relating to self generation of electricity CHP –An organisation can claim credits for electricity exported to other organisations. Organisation does not declare own use of electricity –An organisation cannot claim credits for exported heat as under CRC it is deemed to have zero emissions. - Could cause problems for District Heating Operations Renewable Generation – –If no ROCs (FITs) are claimed then generation is treated as case with CHP –If ROCs are claimed then all electricity generated must be declared and emissions calculated as though it was grid imported – i.e. at a relatively high carbon factor – even though the generation would have a low factor – will affect UEA. –Issue of geographic vs corporate emissions

19 19 Operation of the CRC – EES – the League Table All qualifying organisations will be ranked annually in the Performance League Table (PLT). Originally: organisations would receive a rebate depending on where they are in the CRC League Table – i.e., overall CRC would be Tax Neutral to businesses. In simplified procedure, there is no rebate and CRC becomes a Tax on business Originally during recycling of funds: Those who were at the top of the table would receive a rebate which is higher than what they paid. Those at the bottom would receive less than what they paid. Following Simpification: In Phase 1, the PLT is still produced, but there is no recycling of funds – so no benefit for best performing companies or penalty for worst performing companies The relative position in the League Table is based on Three Metrics i)How much actual reduction in absolute emissions has been achieved ii)To what extent have early action measures been taken iii)To what extent has the carbon intensity (i.e. carbon emission per unit of turnover/revenue) changed.

20 20 Operation of the CRC – EES – the League Table The Growth Metric is based on Carbon Intensity Carbon Intensity is measured in terms of carbon emissions per unit of turnover for Private Companies - NOT per unit of output Is this sensible??? For Public/Government Bodies, carbon intensity is measured in terms of carbon emissions per unit of revenue The relative weighting of the different metrics changes from year to year

21 21 DescriptionYear 1 Year 2 Year 3 Subsequent Phases Absolute Metric Compares the current annual emissions to the average emissions over the preceding five years 0%45%60%75% Early Action Metric Recognition for good energy management undertaken prior to the start of the scheme. based on two factors, equally weighted, (i) % of non-mandatorily HH metered electricity and gas emissions covered by voluntarily installed automatic metering (AMR) by 31 March (ii) The percentage of the emissions covered by a valid Accreditation Scheme certificates on 31 March of each compliance year. 100%40%20%Not Applicable Growth Metric Gives recognition to those organizations which are growing but emissions are growing as a slower rate as measured per unit of turnover compared with those in preceding years 0%15%20%25% Relative Weighting of Phases Should there be a metric to compare carbon intensity within sectors? e.g. A Widget manufacturer who has already reduced emissions significantly will find it more difficult than a competitor who has not previously reduced.

22 22 Example of Performance for League Table Company A has emissions which decrease from 2000 to 1800 tonnes over a year and at the same time output increases from £ to £ Company B has emissions which increase from 3000 to 3100 tonnes over the same period when the output increases from £ to £ How do the two companies compare with regards to the absolute and growth metrics?. Carbon emissions (tonnes)Output kg per £1 of output Company A Year 12000£1,500, Year 21800£1,600, % change-10.0% -15.6% Company B Year 13000£2,000, Year 23100£2,500, % change+3.3% -17.3% Company A performs much better with regard to absolute metric Company B is better with regard to growth metric NOTE: growth metric is in terms of carbon per £1 which is NOT a true measure of carbon intensity

23 23 Carbon Reduction Commitment – Energy Efficiency Scheme Summary: A new emissions trading system which will affect ~ organisations in the UK ~ 5000 organisations will fully participate in trading, remainder will only have to report emissions. Criteria for inclusion is based on electricity use. At least one Half-hour Meter (HHM) and a TOTAL annual consumption > 6000 MWh [ annual consumption ~ equivalent to 1500 houses] Currently there are discussion suggesting that only electricity monitored through HHMs need to be counted, and if this happens then the threshold level of 6000 MWh will be reduced Currently if an organisation satisfies first criterion then they merely have to report.

24 24 Carbon Reduction Commitment – Energy Efficiency Scheme Summary: CRC split into Phases Phase 1: (Introductory) will have a fixed price of CO 2 allowances at £12 per tonne and will be purchase retrospectively at end of year Phase 2: Unlike the original plans this Phase will also have unlimited allowances, but purchased in two phases: At a cheaper price at beginning of year based con estimated emissions A higher price immediately after the end of the year. This will allow some trading on a Secondary Market The price will be reviewed annually. Subsequent Phases MAY revert to the original idea of a cap to limit emissions and allowances will be auctioned.

25 25 EXAMPLE CALCULATIONS FOR PERFORMANCE LEAGUE TABLES. Year 1 to 2 data for each participant. AMR% CTS or equivalent %Emissions (tCO2) Turnover (£m) ParticipantYear 1 Year 2Year 1Year 2 Year 1Year 2 W X Y N/A10.8 Z N/A AMR: Automatic Meter Reading: CTS: Carbon Trust Accredited Scheme Year 1 Each participant is ranked and scored based only on the Early Action Metrics (EAM) Participant AMR % CTS% EAM % = (AMR %x0.5) + (CTS%x0.5) EAM Ranking EAM Rank Score Overall Weighted Score Overall PLT position W X Y Z Note: PLT is based solely on the Early Action Metric

26 26 Year 2 Each participant is ranked and scored based on the Early Action Metrics (40%) Absolute Metric (45%) and Growth Metric (15%) AMR% CTS% EAM % EAM Ranking EAM Score Rolling Av Emissions Year 2 Emissions %change Absolute Metric Rank Absolute Metric Score W X Y Z See CRC Section of Website for further examples rolling Av emissions per unit turnover Year 2 emissions per unit turnover %change Ranking based on Growth Score based on Growth Score based on Growth Metric Ranking Overall Weighted Score Overall PLT position rd nd ** st null th If a company fails to declare (e.g. Company Z) they get no points

27 27 How The League Table was going be used under recycling Next section was covered in previous years before simplification procedures. They are no longer relevant for Phases1 or 2 but may well be introduced again in Phase 3 The next section is included in handout, but will only be covered in a formal presentation if time permits

28 28 How The League Table was going be used under recycling The relative performances of each organisation for each metric are evaluated and ranked. If there are 1000 organisations, the best performing company in any metric is awarded 1000 points while the worst is awarded 1 point. The points for the three metrics are aggregated using the weightings in the table to get an overall point which determines the position of the organisation in the overall league table. Bonuses/penalties are awarded depending on relative position in League table as follows PhaseYearMaximum Bonus/ Maximum Penalty Introductory1+/-10% Introductory2+/- 20% First Capped Phase3+/- 30% First Capped Phase4+/- 40% First Capped Phase5+/- 50%

29 29 Ascertaining the bonus/penalty from the League Table (1) If ultimate position of a company is 3903 rd out of 5000 in the overall performance table, It would have performed worse than average and would incur a penalty. The effective penalty/bonus depends NOT ONLY on the rank order position (i.e in this case) but also on the relative proportion of its emissions to the total emissions under the CRC – Energy Efficiency Scheme. Suppose company is 3903 rd and it has emissions amounting to tonnes out of a total covered by CRC of 20,127,000 tonnes. What is bonus/penalty for the company? Assume Companies ranked 1 – 3902 have total emissions of 12,500,000 tonnes

30 30 Starting EmissionEnd Emission Absolute (tonnes) percentAbsolute (tonnes) percent Companies ranked 1 – ,500, % Company A 3903 rd 12,500, %12,527, % Companies ranked > ,527, %20,127,000100% The factor R is the mid point emission of Company A i.e. ( )/2 = % Ascertaining the bonus/penalty from the League Table (3) Company emits tonnes and is 3903 rd in league table

31 31 If the maximum bonus is B max and maximum Penalty is P max The bonus/penalty of Company A (B A ) is determined as R is the rank position determined as shown above In the second year, the maximum bonus/penalty is +/-20% and the bonus/penalty for the organisation would be: i.e. a penalty of 4.896% Ascertaining the bonus/penalty from the League Table (4)

32 32 This section will probably be skipped from 2011 onwards In more general terms, the factor R may be expressed as where r is the rank position of the company in question, N is the total number of companies E i is the total emissions of company i. Ascertaining the bonus/penalty from the League Table (5)

33 33 A Worked Example (1) Evaluate financial performance of two companies in 2011/12 under the Carbon Reduction Scheme if there are 5000 participants in all. Relevant data for the two companies are shown in following table. If the total emissions from all companies remains static at 30,000,000 tonnes and allowances cost £12 per tonne examine the estimate financial benefit/penalty for the two companies if both companies trade in the secondary market at £15 per tonne to cover any surplus/shortfall in allowances. The relative rankings of the two companies for the three metrics are shown in the following table while the maximum bonus/penalty in 2011/12 is =+/-20% Emissions in Footprint year 2010/11 [tonnes] Allowances purchased for 2011/12 Actual Emissions 2011/2012 Company A Company B Company A Ranking Company B Ranking Metric weighting Absolute Metric250th3500 th 60% Early Action Metric500th3000 th 20% Growth \Metric1000th2400 th 20%

34 34 First work out overall league table position: Company A = 250* * *0.2 = 450 th Company B = 3500* * *0.2 = 3180 th Also work out cost of Allowances either purchased directly or on the secondary market Assuming the Safety Value Mechanism is not used, the total value of all allowances purchased will be 30,000,000 * £12 = £360,000,000 Next work out relative R factor for both companies Actual Emissions Initial £12 Secondary market £15 to cover surplus(+)/shortfall(-) Net Total cost of allowances purchased Number ValueNumberValue Company A £ £1500£21300 Company B £ £1500£32700 A Worked Example (2)

35 35 If total emissions of companies ranked 1 to 449 amount to 8,500,000 tonnes For company A the R factor (R A ) will be: Similarly if the total emissions of companies 450 to 3179 is 10,500,000 tonnes For company B the R factor (R B ) will be: Relative Bonus for Company A = 20 – * ( ) = % Relative Penalty for Company B = 20 – *( ) = % A Worked Example (3)

36 36 Recycled Payment for Company A will be 1800 / 30,000,000 * 360,000,000 * ( ) | | | proportion of emissions recycled payments bonus = £ ~ £23472 For company B 2700 / 30,000,000 * 360,000,000 * (1 – ) = £30,670 Company A thus pays out £22800 initially but and receives £23472 and thus profits by £672, but also gets £1500 on the secondary market making a total profit of £2172 or a return of 9.5% on investment Company B pays a total of £31200 for allowances and receives back £30,670 making a loss of £530, but also pays £1500 for extra allowances and thus makes a total loss of £2030 or a loss of 6.5% A Worked Example (4)


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