1. The CRC: is there a penalty for early action?
September 2009 1

2. Agenda Introduction The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions

3. Introduction CRC 7 months to go! – April 2010 start date
Registration packs from EA expected this month
Final consultation closed – remaining policy decisions expected over Autumn
Key issues for many participants:
How to comply with the CRC
Strategies to minimise costs / maximise return:
Should you cut emissions now?
What is the benefit of ‘early action’?
How do you get support for capex investment?
Focus for today

4. Is there a penalty for cutting emissions now? – a simple analysis
Cost of carbon in the energy we buy:
0.53 tCO2 per MWh of electricity
1 tCO2 emitted for every 1.89 MWh of electricity
Assuming 8p/kWh then 1.89 MWh of electricity costs ~ £150
1tCO2 = £150 electricity cost
CRC implications:
CRC drives competitive behaviour + mgmt attention
Financial gain/loss in CRC is much lower than the cost of energy
Cutting emissions now (and having a plan to continue cutting) makes financial sense
Note also that a greater starting footprint increases your CRC exposure – all future payments are pegged to that point

5. Agenda Introduction The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions

6. The Energy Gap …. and its effect on electricity prices David Middleton
11th September 2009

7. What is the Energy Gap?
“Around 75% of our electricity is currently generated from gas and coal today; renewables will expand to around 30% of our generation by 2020”
Department of Energy and Climate Change,
Low Carbon Transition Plan, July, 2009
“…22.5GW is expected to have closed by 2020 and between 30 and 35GW of new capacity is forecast to be needed by In the period to 2020, 22.5GW of 76GW of 2007 generation capacity will shut by 2020”
Greenpeace,
Closing the Energy Gap,
September 2008

8. Electricity prices; volatile and uncertain
Current prices are less than half what they were 12 months ago, but what will future prices be?
Some organisations are creating an energy efficiency budget with a proportion of any price reduction they get to reduce future energy costs

9. Agenda Introduction The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions

10. League table calculation
All organisations are ranked in a league table
Position in the league table decides the amount of ‘recycled’ money you receive
The maximum bonus or penalty increases year on year
Year 1
Year 2
Year 3
Recycling bonus / penalty
+/- 10%*
+/- 20%
+/- 30%
League table calculation:
Absolute Reduction 0%
60%
Relative Reduction
20%
AMR
50%
10%
Carbon Trust Standard
*Recycling payment in year 1 is double to minimise cash flow impact

11. Early action metrics are the only ranking criteria in year 1 of the CRC
Taking early action to reduce emissions before the CRC leads to financial benefit
The Carbon Trust Standard and AMR are the 2 recognised early action metrics
To gain benefit from the Carbon Trust Standard organisations must have valid certificates on the final day of each CRC year (31st March 2011, 2012, 2013)
Points are allocated for the proportion of CRC emissions covered by the Carbon Trust Standard

12. Illustrative financial impact of taking early action – first CRC year
CRC Footprint
10,000 tCO2
(Equivalent Energy bill)
~£1.5m
Annual allowance cost £12/tCO2)
£120k
Double purchase in 2011
£240k
Potential bonus / penalty (10%) on recycle
+/- £24k
Maximum value at stake 2011 from early action
£48k
Bonus / penalty based 50% on AMR, 50% on CTS
Financial impact scales with footprint
Reputational impact as important as financial impact?

13. The Carbon Trust Standard: certification for good practice in carbon management and reduction
Voluntary certification
Unique focus on measurement, management and reduction
Open to all organisations
Developed by the Carbon Trust, and based on international standards

14. Further Information www.carbontruststandard.com

15. Agenda Introduction The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions

16. ESTABLISHING A CARBON CAPEX BUDGET RODOLPHE D’ARJUZON 11 SEPTEMBER 200916

17. CFOs need to be directly involved for a wide range of reasons
CEO commitments
Targets
Cash Flow Impact of CRC
Carbon Reporting Frameworks
CFO remit
Rising Carbon & Energy Prices
Fund Innovation For Revenue Growth
Risks and Opportunities
Reasons why it is not straightforward to fund carbon initiatives
Resistance to SI in Energy Efficiency
Low Funds Availability
Poor View Of Offsets 17 17

18. Potential framework to create a carbon reduction capex budget
Key Step 18 18

19. Additionally, this framework is easily tailored to suit the timing of the cashflows required under the CRC
To align with the cash requirements for the CRC
Set the carbon price one year ahead of the first allowances purchase to effectively levy the cash from the business units
Use the cash to fund the first allowances purchase
The capex fund for investments in energy efficiency projects is created when the first CRC refund payment comes in
Benefits of this framework
Adaptable to entities of any size: single or multi-business unit businesses, small businesses, Local Authorities
The agreed company wide carbon price makes it transparent and flexible
Central control over funding of projects 19 19

20. Agenda Introduction The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions