1. The Carbon Reduction Agenda Charles Smith August 2008 E: charles.smith@brodies.co.uk

2. Overview  EU Initiatives  UK Initiatives  Scottish Initiatives  Brodies work in this area THERE IS AN ENORMOUS AMOUNT GOING ON

3. EU Initiatives (1)  January 2008 package  Draft Renewable Energy Directive  EU target of 20% renewable energy by 2020 (2005 8.5%)  Renewable energy covers electricity, heat and transport  Targets are set for individual member states (UK must rise from 1.3% at 2005 to 15% by 2020: meeting this will be hard)  The EU-wide target has been shared out among MS using a GDP per capita calculation

4. EU Initiatives (2)  Draft Emissions Trading Directive  European Union Emissions Trading Scheme (EUETS)  Third phase to run from 2013-2020  Aim to cap emissions from regulated installations at 21% below 2005 levels by 2020  Central EU allocation of allowances  More use of permit auctions (100% for the power sector, except for CHP where free)

5. EU Initiatives (3)  80% free allocation for other sectors, but to be reduced by equal annual amounts to 0% by 2020  Proposed extension to the aluminium, non-ferrous metals and chemicals sector  Third phase eight years long – aim is to provide certainty/stable carbon market  Second phase (2008-2012): aviation will be included from 1/1/12

6. EU Initiatives (4)  Carbon Capture and Storage (CCS) – proposed Directive  Aim to remove technical and legal barriers  Exploration permits for suitable storage sites  EU legislation to be amended to accommodate CCS, eg IPPC, EIA, waste and water  Post-closure liabilities to be addressed – ultimately will rest with Member States

7. EU Initiatives (5)  Revised guidelines on Environmental State Aid (April 2008)  Guidelines increase the amount of Environmental State Aid which can be granted  Generally 10% increase on previous levels  In some (limited) cases where there has been a competitive bidding process, 100% State Aid may be granted, ie 100% of the additional costs beyond “conventional” project cost

8. UK Initiatives (1)  The Climate Change Bill  Currently before Westminster  CO 2 emissions reduction of “at least” 60% on 1990 levels by 2050  Rolling carbon budgets of five years duration  Statutory Committee on Climate Change established – will provide advice and guidance to Government  Annual “open and transparent” reporting to Parliament  Bill also introduces paving legislation for carbon reduction trading schemes, the first of which will be…

9. UK Initiatives (3)  The Carbon Reduction Commitment (CRC)  Will apply to users of more than 6,000 MWh electricity per annum and which have half-hourly electricity meters – eg banks, high street retailers, BT, Royal Mail etc  Auctioning and trading of allowances  Intended to capture organisations not currently covered by EUETS  Will not apply to organisations with more than 25% of their emissions covered by Climate Change Agreements  Emissions regulated under EUETS will be excluded

10. UK Initiatives (4)  Very small sources of energy use will also be excluded – the CRC requires only that 90% of total emissions are captured  Will apply to local authorities and hospitals (full details not yet clear)  Will apply to all central Government departments whether or not they satisfy the criteria  Annual auction of allowances – likely price for the first three years of £12 per tonne of CO 2

11. UK Initiatives (5)  Auction revenue to be returned to participants based on league table performance – league table will take account of so-called “early action”  CRC to commence 1 January 2010

12. UK Initiatives (6)  Energy Bill  Provisions for an offshore transmission licensing regime  UK provisions in respect of carbon capture and storage  Designed to take early action to fit within the UK Government’s CCS demonstration project (4 projects shortlisted June 2008)  Reform of the Renewables Obligation (assists renewably-sourced electricity)  RO is to be banded  More or fewer certificates made available according to commercialisation level of technologies

13. UK Initiatives (7)  Work also being done on heat (as opposed to electricity)  UK Government “call for evidence” – views on the potential for renewable heat and incentives required to promote it  Similar activity in Scotland – report from the Forum for Renewable Energy Development in Scotland  We need to produce more renewable heat to meet the EU 2020 target for UK of 15% renewable energy

14. UK Initiatives (8)  Carbon Emissions Reduction Target – 3 yr programme  Requires “lifetime” savings of 154 mt CO 2  Replaced the Energy Efficiency Commitment from 1 April 2008  Obligates electricity and gas suppliers with 50,000 or more domestic customers – energy efficiency/low carbon measures to be made available  Effectively doubles activity compared to the EEC  Low income groups and the elderly are priorities  Suppliers to achieve at least 40% of their carbon emissions reduction obligation in those priority groups

15. Scottish Initiatives (1)  Commitment to a renewable future  Nuclear currently ruled out, but additional non-renewable (coal/gas) capacity also needed, given expected closures in next decade  Scottish Climate Change Bill consultation closed April 2008  Target of 80% reduction in greenhouse gas emissions by 2050  Bill to be published in autumn 2008

16. Scottish Initiatives (2)  Renewables Obligation is devolved  Not expected that RO will be radically different from elsewhere in the UK, but may be certain differences in bandings  Carbon Reduction Commitment is supported by the Scottish Government  Not expected to differ materially from elsewhere in the UK

17. Scottish Initiatives (3)  Targets  50% of all Scottish electricity (NB, not energy as a whole) generation to come from renewable sources by 2020  Interim target of 31% by 2011 (quite possible this will be met)  Note: electricity is 20% of total energy use, heat nearly 50% and transport the remainder

18. Scottish Initiatives (4)  Planning for sustainable development/renewable energy  SPP1 (references sustainable development) and SPP6 (renewables)  Use of planning powers by local authorities to secure low/zero carbon development – 15% extra CO 2 reductions beyond Building Regs 2007 CO 2 standard  100% CO 2 reduction for new residential developments by 2016, 60% by 2013, 30% by 2010  New non-domestic developments to be zero carbon by 2019 (UK Budget 2008)

19. Brodies work in this area (1)  Advisory work on law and policy  Work with a number of public sector bodies on the establishment and structuring of energy services companies (ESCOs) and on the use of planning powers in respect of low carbon development  Advice on specific projects, eg district heating for a local authority through an ESCO  Advice to the ESCO sector on public and private sector projects  Advisory work on legal issues relevant to carbon capture and storage

20. Brodies work in this area (2)  Project finance work on onshore windfarm developments  Contract work on small hydro developments  Planning and consenting advice on renewables developments  Work for landowners on renewables  Due diligence work on possible acquisitions of renewable asset portfolios  Advisory work for banks on carbon offset products

21. Brodies work in this area (3)  Our own carbon reduction agenda initiative “Sustain”  Brodies’ carbon footprint  Use of paper (double-sided printing, recycled paper)  Recycling of materials/waste  Departmental focus groups  More to follow

22. The Carbon Reduction Agenda Charles Smith August 2008 E: charles.smith@brodies.co.uk