WG 5/6 sub-group on Benchmarking

1. WG 5/6 sub-group on Benchmarking ETG Sector Feedback 21 March 2007 Jim Rushworth/Anne-Marie Ferguson

2. Follow-up Feedback From ETG Sectors • Response continues to be positive, 15 sectors have now replied who represent the majority of emissions in phase I. • 13 of 15 sectors believe that benchmarks can be developed. • 8 of 15 sectors have 100% sector agreement for benchmarking • Offshore oil/gas and Oil Refining are the only two sectors who initially believe it will be difficult to benchmark installations.

3. Follow-up Feedback From ETG Sectors Cont. • FDF, SMMT and CIA are investigating a joint benchmarking methodology based on combustion requirement due to the difficulty with using a production based benchmark because of the variety of industries and products in these sectors. • European benchmarks are actively being pursued by aluminium, glass, lime and steel. A follow up meeting is planned for these sectors with OCC this afternoon. • Sector follow-up feedback is shown on the following slides

4. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement Aluminium (Primary) Yes, via European Aluminium Association EU benchmarks supported for direct emissions only (i.e. excluding power input to smelting process) Yes Separate into Direct emissions for smelting and other activities (anode production) Any benchmarks would need to distinguish between direct emissions from the smelting and other associated processes and indirect emissions from the power source used to provide electrolysis as this source varies widely across EU smelters (Hydro/Nuclear/Gas/Coal). An additional benchmark would need to be developed for stand alone anode production units should these facilities be included within the scope of the scheme. 100% for Phase 2, Phase 3 depends on sectors/gases decisions still pending. However there is support at European aluminium Association for benchmarking as a concept for allocation for phase 3

5. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement Cement In early stages of discussion. UK based due to different raw material properties in UK Yes, need to consider encouraging new capital investment but taking account of stranded assets. No, benchmark based on OPC clinker Parameters needed in BM to cover variation in raw materials properties, likely to be up to 5 variables. 100% Ceramics It has been discussed at EU Ceramic meetings but no work done within the sector. I am not aware of any EC work on this but it may be happening. I have not been approached for any data. UK based. UK clays are different to EU clays. Also UK clays generally produce more process CO2 than EU clays Unsure here. We have not had different BMs for New entrants. I cannot see any advantage to having them separated but am prepared to discuss this Yes, we had BMs for brick, tiles and sanitaryware. The brick BM used the 8 variables (see next column). There was a single BM for the other two. Under Standardisation both of these disappeared. The method used in Phase I had 8 variables that covered the industry. Was not perfect but at least gave some measure of a BM that applies to the different process routes. 100% 

6. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement Chemicals We are looking at the Neth/Belg experience In principle, EU level to ensure a level playing field Undecided Yes, discussions on scope encompass a number of distinct activities. Decisions on scope could determine feasibility – a broad rather than “narrow and deep” approach could introduce too much complexity. CHP No, but some member states have benchmarked CHP incumbents. EU would be better, unless “benchmarks” are going to favour particular fuels. UK has a higher use of gas than say Germany. It would be preferable to have incumbents treated on the same BM basis as NE. Two benchmarks are required, one for power and the other for the heat for the “host” process. In turn this could require a different heat benchmark for each product. Benchmarking is already used for NE CHP. Benchmarking for UK incumbents was investigated by Defra and found to be too variable.  100%

7. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement Electricity Producers (Large) (>100 MW capacity) No It was difficult to devise a UK benchmark for use in Phase 2, so it will be even more difficult to devise an EU benchmark for Phase 3. A UK benchmark for Phase 3 can build on the work done for Phase 2. If there is to be a New Entrant Reserve, which is an issue for careful consideration by Government, there must be clear rules for allocation, and the allocation of allowances to new entrants should be equitable compared to the allocation to incumbents. Not applicable. Variables for LEPs are: generating technology/fuel capacity (MW) load factor (%) emissions factor (tCO2/MWh) 100% for some form of benchmarking. It is generally accepted that grandfathering can no longer be considered an appropriate allocation methodology and that benchmarking should be continued in Phase 3.  There was also general agreement that the Phase 2 benchmark should comprise four variables. Electricity Producers (Other) (<100 MW capacity) No It was too difficult to devise a UK benchmark for Phase 2 within the time available, so the feasibility of an EU benchmark for Phase 3 must be questionable. A UK benchmark for Phase 3 can build on the work done for LEPs for Phase 2. As above. As above. Variables for OEPs are as above. 100% as above. It is generally accepted that grandfathering can no longer be considered an appropriate allocation methodology and that benchmarking should be used in Phase 3.

8. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agree-ment Glass – Container (Draft unendorsed position) Yes. TNO Netherlands. But not all UK furnaces part of this assessment process. UK Benchmark i.Different cullet (recycled glass) availability compared to rest of Europe ii. UK has different product mix cf. EU. iii. The definition of the technical unit differs between member states in container glass sector. Affects associated emissions. Sufficient UK container glass furnaces to produce a successful UK BM. Required if not covered by BM variables. Yes Some container products differ greatly from each other e.g decorated scent bottle v wine bottle. i. Different Products = different CO2/t ii. Different glass composition = different CO2/t iii. Different cullet use profile = different CO2/t iv. Different product colour profile = different CO2/t v. Different product campaign length = different CO2/t 6 highly critical i.Furnace age & throughput ii. Furnace Design iii. Cullet: Availability and Use. iv. Product characteristic and quality constraints, e.g. colour. Customer controlled. v. Frequency of job changes. Customer controlled. vi. Fuel profile. (Specific issue in Northern Ireland where natural gas not available.) 100%

9. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agree-ment Glass – Flat (Draft unendorsed position) Yes. TNO Netherlands Few furnaces in UK therefore EU more applicable Required if not covered by BM variables. Float glass: May require effective standardisation to nominal product characteristic. Rolled glass: outside scope of this BM. 5 highly critical i.Furnace age & throughput ii. Furnace Design iii. Cullet: availability and usage limitations cf. product. iv. Fuel profile. v. Product characteristic and quality constraints 100%

10. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agree-ment Lime Yes – relatively early stages (more work has been done in the UK.) EU Benchmark – assuming a simple and equitable system can be agreed. Yes Yes – must account for both high calcium and dolomitic lime products. Parameters needed for fuel type, kiln type, moisture. 100% Offshore oil and gas In early stages of discussion in GB and EU. Earlier DEFRA – Entec report indicated benchmarking likely to be too difficult. Major offshore oil & gas production in Norway and UK only (plus onshore gas production in Germany and Netherlands). Reason: completely different designs of installations – they are all one-offs based upon characteristics of the reservoirs. Possibly. UK benchmark exists for New Entrants, based upon turbine capacity, efficiency and planned usage (running hours/load) from the Field Development Plan (an FDP has to be submitted to the regulatory authorities for approval, before a development can begin). Potentially different for oil fields and for gas fields and for joint oil and gas fields. Parameters may need to include – location, onshore vs offshore; activity, production vs processing; product, i.e. oil or gas, or oil and gas jointly; maturity, age of field. High

11. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agree-ment Oil Refining Yes, it is being studied by the industry, although it is not proving easy to reach satisfactory conclusions. Benchmarking should be EU-wide, because our prime concern is a level playing field within EU. Yes – there should be some recognition of inherited technology No. It is extremely difficult to BM refineries which simultaneously make multiple products with very different levels of processing to different product yields Need to recognise different fuel mix at different refineries. Also a variable mix of combustion and process emissions. Paper Our European Association (CEPI) is investigating this but will not have results for a number of months UK based. There are different types of mills in the UK compared with other EU MS – particularly producers of speciality products e.g. teabags. No. A BM applicable to all players should incentivise NEs to use BAT in their investment. It would also provide a fair result for any NE drawn into the sector by passing a threshold (i.e. not necessarily a brand-new investment in capacity). Yes. Different paper products – and certain products within a notional product grouping - have specific energy consumptions that differ by more than an order of magnitude. Will need to cover different types of steam-raising equipment, different types of driers etc – likely to be 3-5 variables per BM.

12. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement Spirits (grain distilling) – included in the Food and Drink sector in EU ETS No UK based due to concentration of grain distilling sites covered by EU ETS in the UK (all in Scotland). We are aware of only one other distillery (Irish whiskey distillery) which produces potable spirits from another Member State that is included in EU ETS. Yes – to include all distillates and co-products. Cereal raw materials (2+ variables). Neutral alcohol brought into sites for further processing (2+ variables). Principal distillates produced (5+ variables). Co-products (2-3 variables) CHP (2 variables) Utilisation factor (2+ variables) Steel Yes EU, eventually global benchmark No, but transition arrangements for “outliers” among incumbents Yes (BF/EAF) Current EU steel industry baseline proposal takes into account of all relevant inputs and outputs. 100%

13. Sector Are you aware of any work on an EU wide Benchmark (BM) for your sector? Preference for EU vs UK based BM (include reasons for UK based BM) Separate BM for incumbents vs NEs Separate BM for different products required Specific issues/indication of the likely number of variables % Sector agreement ‘Other combustion’ i.e. >20MW but not ESI (mainly CIA, FDF, SMMT and services) Before detailed response, need to determine: Are we looking for a common BM methodology to be applied to different sub-sectors of ‘Other Combustion’ (Chemicals, Food & Drink, Others A, B, C, etc or perhaps further differentiate A, B, C), or a single methodology to be applied to all >20MW combustion plant (except ESI)? How to define sub-sectors? Potential preference for two stage methodology to take account of factors in each sub-sector: growth rates, exposure to international competition, abatement potential, ability to pass on cost etc. Is CHP to be treated as separate sector (as in Phase II)? Is BM used to create sector cap or to share it out, or both? If we have a de minimis of 25,000tpa, this would exclude approx 70% of SMMT and 75% of FDF and 40% of CIA, so sector (and BM) would be much smaller but still complex. Would there be an NER? At sector or sub-sector level? Preparations and data gathering in UK. Discussions just begun at EU level. EU ideally TBC VERY diverse sector so intuitively prefer simplicity of combustion based BM (tCO2/MW), but need to assess if simple BM can be fair. Diversity suggests different BMs for different products type would be very complex. Approx 5 variables Keen to consider ex-post adjustment or using previous year’s data. Otherwise there is a combination of process, space and mixed (process/space) heating, making standardised load factors inequitable