Carbon Reduction Commitment seminar

Enviros Consulting Limited is part
Slide 1 of the Sinclair Knight Merz Group

Carbon Reduction Commitment (CRC) Energy
Efficiency Scheme: Briefing

Damian Culshaw & Ruth Whittington

25 3 June 2009
November 2009

2009 Winner of four Edie Awards for Environmental Excellence - Best consultancy for Waste and Recycling;
Climate Change and Renewables; Due Diligence; Water and Wastewater

of the Sinclair Knight Merz Group

Contents
• Introduction to Enviros Consulting
• Policy overview
• Steps to tackle the CRC
• A worked example
• Contact details


Enviros Consulting: About us

Our Pedigree

• Over 30 years’ experience in a Our Organisation
strong and growing sector • £35m revenues, over 400 staff
• Full service, integrated • 13 offices in the UK, Ireland and
environmental, health and safety Prague plus the CAT Alliance - a
consultancy global environmental JV covering
• ‘Blue chip’ client base in both the 50+ countries
public and private sectors • Enviros was acquired by Sinclair
• No1 brand in environmental Knight Merz in Nov 2009
consultancy


Our core business is divided into five service
areas
Waste & Resource ‘Cradle to grave’ resource management encompassing eco-design,
Management process optimisation and materials recovery

Compliance & Environmental Meeting and benefiting from regulatory obligations by taking an
Solutions integrated approach

Health and safety advice and support across the property
Health and Safety
management, retail, construction and corporate markets

Sustainable Development & Mgmt. and technical services at every point in the planning,
Regeneration development, design and construction life cycle

Climate Change & Helping clients address the demands and opportunities of a low
Renewables carbon economy


Our ‘blue chip’ client base


Our CRC work covers the public and private
• Public sector:
sectors
– Department of Energy and Climate Change (DECC) extensively over past
5 years
– National Health Service (NHS): understand costs and benefits of
participation
– Kirklees County Council: prepare for the CRC
• Private sector:
– Trelleborg
– Kerry Foods
– Tesco
– DCC


What is the CRC?
• The CRC is a mandatory emissions trading scheme that will cover large non-
energy intensive UK organisations
• Organisations will be required to measure, monitor and report emissions from
stationary (i.e. non-travel) energy uses (electricity, gas, oil, coal etc.)
• Organisations will buy emissions ‘allowances’ from Government
• They must surrender enough allowances each year to cover their emissions
• Revenues from the sale/ auction will be recycled back to participants
• The amount an organisation receives back will depend on its emissions and a
performance related bonus/ penalty
• All participants’ performance will be ranked in a league table and published


The scheme will start in April 2010
Introductory phase First capped phase
Collect data to set cap Absolute cap on emissions

1.2MtC (8%)
April March April March
3 years ~5 years reduction on
2010 2013 2013 2018
BAU by 2020
Fixed price sale Allowances auctioned annually

• You shouldn’t wait until then to plan your strategy
• Your performance in this scheme will affect your costs, your regulatory
compliance and your reputation


Enviros has worked for Government on the
CRC throughout its development

Dec 2005 July 2006 Jan 2007 Oct 2007 Mar 2009 Jun 2009
Carbon Trust Energy 1st public 2nd public CRC user 3rd public
report Review consultation consultation guide and consultation
Identifies confirms role on new on CRC draft on CRC
policy gap for new policy closes closes Regulations closed
policy published

Enviros and Enviros reviewed Enviros also Enviros Enviros has
NERA Consulting responses to this reviewed this produced a reviewed
produced a consultation, consultation report which responses to
report for Defra which showed which gave quantified the the recent
reviewing the more support for feedback on impact of the consultation on
volume & nature the CRC than e.g. green CRC on the the draft order
of carbon savings voluntary electricity & NHS for for DECC
opportunities in benchmarking & organisation DECC and
the UK reporting definition DoH


Enviros is using this knowledge to help clients:
Get ready for the CRC Reduce costs, energy and carbon
• Organisation definition • Energy monitoring and targeting
(M&T)
• CCA exemption
• Energy saving and carbon reductions
• Carbon Trust Standard accreditation
– energy efficiency
• Energy metering including AMR
– renewables, CHP & trigen
– training and awareness raising
Manage compliance – stakeholder engagement
• Registration
• Compliance action plan
• Emissions trading strategy


October announcement
• Cashflow: single payment/ recycling for first sale
• Significant Group Undertakings: large principle subsidiaries can participate
in their own right
• Early Action Metric: CT Standard no longer only eligible scheme; metric
weighting reduces more gradually (100% to 40% to 20%)
• Renewables: energy use will be published alongside league table (treated
same as brown for carbon calculations if ROCs issued/ use FIT)
• Public sector definition: Freedom of Information Act definitions now used
• Timing of EA mail outs: guidance on registration/ information disclosure due
end of October; some guidance on AMR, early action metric already available
• Database: Not too late to let the EA know if want number of meters to be
grouped together for correspondence


First compliance year Second compliance year Third compliance year
April 2010 to March 2011 April 2011 to March 2012 April 2012 to March 2013

Footprint year Submit footprint
report for
April 2010 to March 2011
2010/11
Source: DECC modified by Enviros
Registration
April to Sept 2010
Submit annual
Submit registration Submit annual report and
or information surrender
report for
disclosure allowances for
2010/11
information 2011/12

April Sept April July Oct April July Oct
2010 2010 2011 2011 2011 2012 2012 2012

1st Sale takes place 1st Recycling payments 2nd Sale takes place 2nd Recycling
made payments made
•Buy emissions •Revenue from April 2011 •Buy allowances for • Revenue from April
allowances for forecast sale recycled back to forecast 2012/13 2012 sale recycled
2011/12 allowances participants allowances back to participants


What are the immediate priorities for
organisations?
• Are you covered by the CRC? You have to take responsibility for all energy
consumption where you pay the energy bill
P1: Make sure you understand all of the energy sources you are responsible for

• You will need to report your half hourly/ 70kVA electricity use from calendar year
2008
P2: Make sure you have electricity statements for all the relevant electricity suppliers

• You will also need to report energy use from all ‘core’ energy sources and make
sure that at least 90% of your energy use is reported on, from April 2010

P3: Make sure you can monitor, keep an evidence pack for and report all the energy
uses (not just electricity) you are responsible for (see P1)`


What are the immediate priorities for an
organisation?
• Failing to comply with the rules will incur financial penalties
P4: Make sure that you have the roles and responsibilities in place to follow the
development of the rules and to implement the actions required within the timetable
• In April 2011 you will need to buy one years’ worth of allowances from
Government; a proportion of that money will be recycled back six months later
P5: Make sure that you have budgeted to buy the allowances and understand the
cashflow/ VAT impacts/ responsibilities that result from recycling
• Your league table position affects your costs and your reputation – you will be
compared against your competitors. In the first year, whether you have the
Carbon Trust Standard (or an equivalent) and voluntary Advanced Meter
Reading will drive your score. After that, reducing your emissions becomes more
important
P6: Develop a strategy to manage your league table position decide to get the CT
Standard and/or to improve your AMR and then the emissions reductions to prioritise


Herts Partnership Foundation Trust (HPFT)

HPFT
Parent organisation

56 sites*
HHM 491,443 KWh HHM 942,426 KWh

Covered by CRC? No
2 HHMs (across 2 of 56 sites)
Electricity through these (2008): 1,434 MWh <6,000 MWh HHM electricity

half hourly metered site (99 Waverley Road – Office)

half hourly metered site (Haysebury – In-patient)
* includes 24h residential, drop-in, minority shared, mixed use buildings, multi-building site, offices


Enviros can help you:
• Establish whether an organisation is captured by the scheme
• Identify which energy uses are covered and what energy use data needs to be collected
• Set up/work with an EMS &/ data management system to meet CRC requirements
• Monitor and measure energy use and emissions from each covered source
• Compile and maintain an evidence pack and prepare to report an annual emissions
• Develop a strategy to score top marks in the league table by:
– achieving the Carbon Trust Standard (we have 3 CT Standard Assessors) and/ or
– installing Advanced Meter Reading (AMR)

• Reduce carbon emissions to save money & improve league table performance
• Work out the financial implications (including allowances costs, non compliance penalties, cashflow
implications, redistributing recycling revenues internally)
• Work out what resources/ roles/ responsibilities are required to comply with the scheme
• Develop and implement a carbon trading strategy
• Provide training (workshops, briefings, practical sessions) on all of the above


For further information

• Damian Culshaw damian.culshaw@enviros.com 01865 408287
• Ruth Whittington ruth.whittington@enviros.com 0207 421 6359


Carbon Reduction Commitment
Energy Efficiency Scheme
- a quick review leading to ‘how green is
your lease?’

Green breakfast
Wednesday 25 November 2009

David Rayner, partner, Real Estate, Blake Lapthorn
head of Commercial Development sector

CRC – background
Introduced by Climate Change Act 2008
Final consultation closed 04.06.09
Revised proposals announced October 2009 – now called Carbon Reduction
Commitment Energy Efficiency Scheme
Government targets to reduce greenhouse gas emissions from 1990 baseline by
34% by 2020 : 80% by 2050
Reduce energy use by large organisations
Buy and surrender allowances per tonne of CO2 emitted
Environment Agency = administrator and regulator
Introductory phase – 2008 calendar year
Estimate total consumption at registration – estimate be within 20% of actual
First phase 01.04.10 – 30.03.13
Cap and trade scheme NOT revenue producing
CRC acronyms
EA and suppliers will write to the billing address – be warned!
Draft guidance from the Department of Energy and Climate Change or
Department of the Environment
CRC threshold likely to reduce in future

© Blake Lapthorn 2009

Am I in?
During 2008
Did you consume at least 6,000 MWh electricity?
Through at least 1 half hour meter?
Were you the signatory to the supply contract?
= full participant (about £500,000 electricity bill)
If less than 6,000 MWh through at least one half hour meter =
make an information disclosure

Group companies
Highest parent reports
Doesn't include all energy if:
energy used for transport
Climate Change Agreement, EU Emissions Trading Scheme


Duties if in CRC
Register with E.A.
Use CRC web-based registry by 30.09.2010
Record energy consumption – all fuels, - April 2010 –
March 2011 = Footprint Report = baseline.
Annual report on energy usage and emissions to E.A.
Director statement
Buy allowances per tonne CO2 emissions
Surrender allowances to match actual emissions
Pay
– registration fee (£950 probably)
– annual fee (£1,300 probably)
Initial phase allowances cost £12 each – unlimited
Subsequent phases
– government cap on number of allowances
– sealed auction = market sets price

Duties if in CRC

No VAT on safety valve allowances
Submit allowances in July
Recycling payments in October
Excess allowances sold on secondary market
Additional allowances through ‘safety valve’ of E.A.
linked to EU Emissions Trading Scheme
But first year of Scheme will be ‘reporting only’
Buy allowances April 2011 based on forecast
emissions for 2011/12


Not revenue producing

Monies will be pooled
Distributed at end of each year according to performance of
improved energy efficiency
League tables
– published twice a year (second version for appeals and
corrections)
– publicly available
Good performers – bonus and cost of allowances paid for
Bad performers – reduced payment and/or penalty
Recognition if actively engage employees in energy use
reduction


Not revenue producing

NB
Cash flow issues. Capital tied up in allowances
before money back via recycling payment but first
year now “reporting only” will assist cash flow.

League table - how well have you reduced your
emissions?
1. Absolute metric – relative change in your CRC emissions
2. Early action metric – energy saving measures put in place before
CRC
3. Growth metric - measures change in emissions intensity ie credit if
you expand in energy efficient way

NB

Year one will be based solely on Early action metric

Penalties for non-compliance
Failure to register - £5,000 and £500 per day until registered
Failure to report - £1,000
Failure to provide annual report - £500 per day of delay
Incorrect reporting - £40 per tonne of CO2 - incorrect over 5%
tolerance
Failure to surrender enough allowances – recycling payment
withheld
Knowingly provide false information = criminal offence
Others
E.A. powers of inspection and audit


Why comply?
Reduce your energy costs
High league table position = bigger share recycling payments
Reduce emissions = reduce allowances needed
Reputation by league table ranking
As allowances costs increase = more cost effective to invest in
energy efficiency improvements
Get credit for certain specified energy efficiency activities prior to
April 2010 eg initial automatic meters and Carbon Standard
accreditation (Early Action Metric)
Recycling payments received in October
(pay for allowances in April)


Other points
Combined heat and power credits
Renewables credits
Changes to group companies
Subsidiary which qualifies as a ‘significant group undertaking’
can participate in own right
Business expands/contracts
Your supplier should help!
Franchisor/franchisee
Franchisee legal obligation to provide reasonable assistance
Landlord and tenant relationship
Tenant’s legal obligation to co-operate and assist with
compliance


Landlord and tenant

Is landlord in CRC?
Does he supply energy to tenants?
Is tenant in CRC?
What about service charge?
CRC not linked to building
CRC is not a service provided by landlord (it’s a statutory
obligation of landlord)
CRC is not a ‘tax’
Both help each other to reduce energy consumption
Extra landlord rights to carry out energy efficient improvements?
How to apportion costs and/or benefits


Green leases

Enforceable obligations v Memorandum of Understanding?
Consensus, co-operation, flexibility, dialogue
Manage costs - control
Will tenants accept obligations?
What are the valuation implications?
Will clauses be flexible enough for future change?
What if some tenants accept and others don’t?
Existing leases?
Australian model – green tenancy schedules - binding
Memorandum of understanding - non-binding
Half way house? - general obligations in lease plus MoU?


Green leases
Landlord and tenant set up energy efficiency funds?
Building Management Committee?
Alterations
– remove and reinstate
– banned if adversely affect energy performance - suitable for
purpose/sustainability
– waive £ for £ basis long term ‘green improvements’ against other
dilapidations. Payback payment based on ratio between anticipated
life of the green improvement or its payback period (if shorter) and
the residue of term.
– sustainable materials only (and repairs)
Share data
Recycling
Incentives?
Management plan/occupational handbook
Environmental Report
Biodiversity
Transport

Green leases
Energy
– share data/how to measure/sub-meters
Energy efficiency
– co-operate to reduce/operational audit/occupation against
building maintenance system settings/alter, replace,
maintain equipment
Waste
– share data/measurement
Waste efficiency
– corporate or reduce and recycle/audits/works waste
Water and waste water
– share data/measurement/co-operate on reduce and
recycle/rainwater collection/sub meter
Building operations and share best practice – cleaning contracts
Confidentiality of data

If you have questions on this or other related topics, please
contact: david.rayner@bllaw.co.uk
Blake Lapthorn is an English law firm regulated by the Solicitors
Regulation Authority under SRA number 448793 whose rules
can be accessed via www.sra.org.uk
This presentation is protected by copyright and is not a
substitute for detailed advice on specific transactions and
problems and should not be taken as providing legal advice on
any of the topics discussed.
A full list of our partners is available on our website at
http://www.bllaw.co.uk/about_us/a_to_z_of_partners.aspx or at
any one of our offices http://www.bllaw.co.uk/offices.

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