111
CLIMATE CHANGE GOVERNANCE AND COMPLIANCE
N.K. Tovey (杜伟贤 ) M.A, PhD, CEng, MICE, CEnv
Н.К.Тови М.А., д-р технических наук
Recipient of James Watt Gold Medal
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NBS-M017/NBSLM04D 2013
Carbon Reduction Commitment – Energy Efficiency Scheme
http://www2.env.uea.ac.uk/energy/energy.htmhttp://www.uea.ac.uk/~e680/energy/energy.htm
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Course WEB Page http://www2.env.uea.ac.uk/energy/energy.htm or http://www.uea.ac.uk/~e680/energy/energy.htm
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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: 2nd/9th/16th/28th October & 6th November
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Carbon Reduction Commitment – Energy Efficiency Scheme
A new emissions trading system which affects ~ 20 000 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 CO2 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.
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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.
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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.
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• The Qualification Period for Phase 1 was 2008 when initial assessments were made
• The Registration period, for Phase 1 was April 1st – September 30th 2010issues 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
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Footprint and Compliance Years
• Footprint Year in Phase 1 is April 1st 2010 – March 31st 2011– with report due July 2011
• Compliance Year (Year 1) As originally planned to start April 1st 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. 2010 / 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 1st 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
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Footprint and Compliance Years• Compliance Year (Year 2) from April 1st 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. 2011 / 2012) would have occurred in October 2012. 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 1st 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
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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 2Sale of 1st Allowances to
cover forecast 2011/12 emissions
1st Recycling Payment
2nd Recycling Payment
Start of Compliance Year 3Sale of Allowances to
cover forecast 2012/13
Footprint Report due 1st 1st Annual Report Due
2nd Annual Report DueAllowances surrendered
Start of Capped Phase
CRC Timeline as originally proposed in 2009
1st Recycling Payment based on performance
in 2010/2011
2nd Recycling Payment based on performance
in 2011/2012
2010 2011 2012 2013 2014 2015 2016 2017 2018
Phase 1
Phase 2
Phase 3
Phases of CRC Energy Efficiency Scheme - Reporting
Footprint YearReport 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
All Energy Use Emissions
All Energy Use
Emissions
Relevant Emissions
Relevant Emissions
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Calculating Emissions to be included in CRC -EES
Total Footprint Emissions Total
Footprint Emissions
Regulated Emissions
Regulated Emissions
CRC 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
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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.
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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
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Purchase of Allowances: Phase 2 etcOriginal System for Phase 2 and thereafter – may now be used from Phase 3Number 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 2014-15, allowances will be available for purchase on estimated emissions2) In April immediately following year – i.e. April 2015 for 2014-15.• 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
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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).
20 000 000 tonnes from companies bidding above £25
per tonne
20 000 000 tonnes from companies bidding £22 - £25
20 000 000 tonnes from companies bidding £21 - £22
Company A £20.85: 100 000 tonnes Company B £20.79: 100 000 tonnes
Company C £20.78: 100 000 tonnes Company D £20.75: 100 000 tonnes
Target
60, 200,000tonnes
Companies bidding < £20.75
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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)
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
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Operation of the CRC – EES – the League TableAll 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 achievedii)To what extent have early action measures been takeniii)To what extent has the carbon intensity (i.e. carbon emission per unit of turnover/revenue) changed.
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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
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Description Year 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 2011.
(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.
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Example of Performance for League TableCompany A has emissions which decrease from 2000 to 1800 tonnes over a year and at the same time output increases from £1500000 to £16000000.
Company B has emissions which increase from 3000 to 3100 tonnes over the same period when the output increases from £2000000 to £2500000.
How do the two companies compare with regards to the absolute and growth metrics?.
Carbon emissions (tonnes) Output
kg per £1 of output
Company AYear 1 2000 £1,500,000 1.33Year 2 1800 £1,600,000 1.13% change -10.0% -15.6%
Company B Year 1 3000 £2,000,000 1.50Year 2 3100 £2,500,000 1.24% change +3.3% -17.3%
• Company A performs much better with regard to absolute metric• Company B is better with regard to growth metricNOTE: growth metric is in terms of carbon per £1 which is NOT a true measure of carbon intensity
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Carbon Reduction Commitment – Energy Efficiency SchemeSummary:
A new emissions trading system which will affect ~ 20 000 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.
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Carbon Reduction Commitment – Energy Efficiency SchemeSummary:
CRC split into Phases
• Phase 1: (Introductory) will have a fixed price of CO2 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.
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EXAMPLE CALCULATIONS FOR PERFORMANCE LEAGUE TABLES. Year 1 to 2 data for each participant.
AMR%CTS or
equivalent % Emissions (tCO2) Turnover (£m)
Participant Year 1 Year 1 Year 2 Year 1 Year 2 Year 1 Year 2 W 80 100 100 10000 11000 5.5 5.6 X 60 80 80 120000 125000 120 120 Y 50 0 50 50000 50000 N/A 10.8 Z 0 0 0 80000 85000 N/A N/A
AMR: Automatic Meter Reading: CTS: Carbon Trust Accredited Scheme
Year 1Each 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 80 100 90 1 4 4 1 X 60 80 70 2 3 3 2 Y 50 0 25 3 2 2 3 Z 0 0 0 4 1 1 4
Note: PLT is based solely on the Early Action Metric
26If a company fails to declare (e.g. Company Z) they get no points
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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
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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
Phase Year Maximum Bonus/ Maximum Penalty
Introductory 1 +/-10%Introductory 2 +/- 20%First Capped Phase
3 +/- 30%
First Capped Phase
4 +/- 40%
First Capped Phase
5 +/- 50%
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Ascertaining the bonus/penalty from the League Table (1)
If ultimate position of a company is 3903rd 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. 3903 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 3903rd and it has emissions amounting to 27000 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
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Starting Emission End Emission
Absolute (tonnes)
percent Absolute (tonnes)
percent
Companies ranked 1 – 3902
0 0 12,500,000 62.106%
Company A 3903rd
12,500,000 62.106% 12,527,000 62.240%
Companies ranked > 3903
12,527,000 62.240% 20,127,000 100%
The factor R is the mid point emission of Company A
i.e. (62.106+62.240)/2 = 62.173%
Ascertaining the bonus/penalty from the League Table (3)
Company emits 27000 tonnes and is 3903rd in league table
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If the maximum bonus is Bmax and maximum Penalty is Pmax The bonus/penalty of Company A (BA ) 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%
)(. maxmaxmax PBRBBA
%896.4)2020(.62173.020
Ascertaining the bonus/penalty from the League Table (4)
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This section will probably be skipped from 2011 onwardsIn 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 Ei is the total emissions of company i.
N
i i
r
i ir
E
EE
R1
1
12
Ascertaining the bonus/penalty from the League Table (5)
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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 2000 1900 1800
Company B 2500 2600 2700
Company A Ranking
Company B Ranking
Metric weighting
Absolute Metric 250th 3500th 60%
Early Action Metric 500th 3000th 20%
Growth \Metric 1000th 2400th 20%
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First work out overall league table position:
Company A = 250* 0.6 + 500*0.2 + 1000*0.2 = 450th
Company B = 3500*0.6 + 3000*0.2 + 2400*0.2 = 3180th
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 Purchases @ £12
Secondary market value @ £15 to cover surplus(+)/shortfall(-)
Net Total cost of allowances purchased
Number Number Value Number Value
Company A 1800 1900 £22800 +100 +£1500 £21300
Company B 2700 2600 £31200 -100 -£1500 £32700
A Worked Example (2)
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If total emissions of companies ranked 1 to 449 amount to 8,500,000 tonnesFor company A the R factor (RA ) will be:
Similarly if the total emissions of companies 450 to 3179 is 10,500,000 tonnes
For company B the R factor (RB ) will be:
Relative Bonus for Company A = 20 – 0.28366 * (20 - -20) = +8.665%Relative Penalty for Company B = 20 – 0.63344 *(20 - -20) = -5.338%
28366.0000,000,30
000,500,82
18002
1
1
1
N
i i
r
i ir
AE
EE
R
63344.0000,000,30
1800000,500,10000,500,82
2700
RB
A Worked Example (3)
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Recycled Payment for Company A will be
1800 / 30,000,000 * 360,000,000 * (1 + 0.08665) | | | proportion of emissions recycled payments bonus
= £23471.64 ~ £23472
For company B
2700 / 30,000,000 * 360,000,000 * (1 – 0.05338) = £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)
