? Council and the CRC Energy Efficiency Scheme

1. ? Council and theCRC Energy Efficiency Scheme Date Name of Officer

2. Preparations • Information and guidance obtained from: • London Energy Project CRC Toolkit • Supported by Capital Ambition • Distributed by Regional Efficiency and Improvement Partnerships • Created to help prepare Local Authorities for the arrival of the CRC Energy Efficiency Scheme (CRC) • To help organisations understand the CRC • To highlight and explain the key issues • To provide practical advice and examples • Shared learning and efficiency, highlight best practice • Reviewed and validated by Department of Energy & Climate Change

3. Introducing the toolkit • Guide – Preparing for the CRC Energy Efficiency Scheme • Guidance - accounting and finance issues • Schools Leaflet • Excel Reporting Tool – qualification, CRC Footprint and Annual Reports • Excel Modelling Tool - Performance League Table & Recycling • Excel – Example recycling payment calculator • Communication materials • Executive Summary • PowerPoint slides – elected members, senior managers & schools

4. Zone A + B = CCLA & EU ETS c. 5,000 orgs, 22MtC CRC CCLA Up to 6,000 orgs, 14MtC Zone A: CCLA only c.9MtC No overlap with CCLA or EU ETS EU ETS & CCLA overlap (c.12MtC) EU ETS Zone B: EU ETS exc Refineries & Offshore c.300 orgs, 13MtC Refineries & Offshore: c.70 orgs, 10Mtc Small businesses that do not pay CCL c.3m orgs, 1MtC UK carbon regulations CCL Package c.990,000 orgs, 51MtC Rest of business & public sector: c.979,000 orgs, 15MtC

5. What is the CRC? • UK wide mandatory emissions trading scheme aimed at larger private and public sector organisations • Will apply to 5 – 6,000 organisations • Begins in April 2010 • CRC Organisation is defined as the highest UK parent • Must qualify to participate • Annual half-hourly electricity use above 6,000MWh in 2008 or; • Central Government department • Must cover 90% of total emissions inc. all core energy sources (e.g. gas and electricity) plus necessary residual sources (e.g. LPG and fuel oil etc) but not Transport • Must monitor and report energy consumption from April 2010 • Must buy & surrender allowances to cover actual emissions each year • Recycling payment each year based on emissions performance and league table position

6. The CRC Cycle

7. What is the CRC? • Three year introductory phase featuring simple fixed price sale of allowances and an uncapped market - £12/tCO2 • From 2013 there will be a Government imposed cap on emissions, and allowances will be sold each year via an auction • Allowances bought in April each year (initial purchase in April 2011) • Report and surrender allowance each July • Recycling payment each October • Early actions will be rewarded • Use of voluntary AMR • Carbon Trust Standard accreditation • Registration and annual fee • Administrative burden

8. Who needs to know? DEPARTMENT ROLE IN CRC Obligatory Director level contact required for the CRC therefore knowledge of the CRC is essential Understand risk across all departments Board of Directors Creating, managing and implementing energy and carbon abatement strategy Assessing qualification, collating data, providing footprint and annual reports Energy Management Good carbon auction strategy required. This needs close collaboration between the two departments. Budget for allowance purchase, possible imposition of a bonus penalty as recycling payment is made Understand the funding gap between allowance purchase and recycling receipt as well as the possibility of variance in the amount recycled Finance Understand what data is required and when Implement energy management projects as and when required by the energy manager and other depts. Facilities Management Understand the data requirements and the opportunities and challenges presented by the CRC Issues include: obtaining the data from suppliers as contracts start or end. Corporate Procurement

9. Non compliance • Failing to register or make information disclosure • Providing false or misleading information to secure an exemption • Failing to open a registry account • Using false or misleading information as evidence that they fall outside the scheme • Failing to report annual data on time • Provision of false or inaccurate annual emissions data • Failure to surrender allowances corresponding to the reported emissions • Failure to pay for allowances on time

10. Insert Council penalties Use Finance Impacts Estimation Tool • Registering a month late - £15,000 • Reporting either CRC Footprint or Annual Report a month late - £34,029 • Submitting incorrect or inaccurate report data (±10% error) - £116,120 to £232,240 • Failing to maintain adequate records - £145,145 • Fines are cumulative – one offence can easily lead to another

11. Insert Council CRC organisation

12. Schools • Local Authorities are responsible for all maintained schools in their area (Foundation and Trust; Voluntary Aided, Voluntary Controller; Academies and City Technology Colleges) • PFI operated schools, where the operator pays the energy bill directly will not be part of the Local Authority

13. Others • ? Leisure Trust • Independent company, no controlling interest • Council is landlord • Council is Counterparty to Supply Contract for gas and non-half hourly electricity • Trust is Counterparty to Supply Contract for half hourly electricity

14. Other (cont) • No controlling interest: • list • Therefore, all are outside Council CRC organisation

15. Council qualifying consumption Insert a list of HH meters and their emissions to demonstrate qualification Potential to identify missed sites

16. Total footprint (2008) Insert a list of all meters and other emissions to demonstrate footprint total You may wish to identify 90% deminimis You may wish to name exclusions as a double check that they do not fall within your CRC organisation Potential to identify missed sites

17. Emissions coverage 1. MUST remove all energy use from excluded sources 2. MUST remove 100% of emissions from CCA exempt subsidiaries 3. CAN remove up to 10% of footprint emissions but not Core Sources, or covered by EU ETS or CCAs. Regulated Emissions must be at least 90% of relevant emissions 4. MUST remove all emissions covered by CCAs and EU ETS.

18. Potential CRC Footprint You can use the CRC Data Tool to support this calucaltion

19. How much? • Likely CRC Footprint of ? tonnes • At £12 per tonne = £? • Plus one-off registration fee - £950 • Plus annual fee - £1,290 • Plus administration costs

20. CRC timeline First year of scheme: 2010/11 Second year of scheme: 2011/12 Third year of scheme: 2012/13 Jul 2012 Report on and surrender allowances for 2011/12 Jul 2011 Report and surrender allowances for 2010/11 April 2010 April 2011 April 2012 Oct 2012 Oct 2011 etc Spot Trading • 2nd Sale takes place • Participants pay for forecasted 2012/13 allowances • 2012/13 allowances released to participants • Government holds 1 year of scheme revenue • 2nd Recycling payment • Revenue from April 2012 sale recycled back from Government to participants • Government holds £0 of scheme revenue • 1st Sale takes place • Participants pay for forecasted 2011/12 allowances • Council costs • 2011/12 allowances released to participants • Government holds 1 year of scheme revenue • 1st Recycling payment • All revenue from April 2011 sale (i.e. 1 year’s worth of revenue) recycled back from Government to participants • Council – max £? • min £? • Government holds £0 of CRC revenue Council allowances based on 2008 CRC Footprint

21. Recycling payments • Cannot predict actual recycling payments • Principally based on two factors • Actual emissions performance • League Table position • Position defined by one metric – Year 1 • Early Actions – (100%) • Position defined by three metrics – Years 2 & 3 • Absolute emissions (45% Yr 2, 60 % Yr3) • Early Actions (40% Yr2, 20% Yr 3) • Growth/decline (15% Yr 2, 20% Yr 3) • Position defined by two metrics – Capped Phases • Absolute emissions (75%) • Growth/decline (25%)

22. Scheme year relationships Year 1 2010-11, reporting year only. League Table position based 100% on Early Action metric,10% bonus/penalty received October 2011 (for performance in 2010-11) Year 2 2011-12, recycling payment based on performance in 2010-11 and therefore 100% of Early Action metric, 10% bonus/penalty received October 2011 Year 3 2012-13, recycling payment from relative performance in the scheme and position in the performance league table based on performance in 2011-12, 20% bonus/penalty received October 2012

23. Example league table and recycling payments 16% £779,940 81,244 30% £1,254,476 12% 16% = X of = = £7,840,476 652,488

24. What does this mean? • Recycling cannot be predicted – why? • Don’t know Council’s share of total scheme emissions • Don’t know the value of total allowances each year • Don’t know actual emissions year-on-year • Don’t know Council’s actual position each year • Don’t know how other participants will perform • Stage one is compliance • Stage two and success in the CRC is based on • Development of a Carbon Abatement Strategy including • Understanding your Marginal Abatement Costs

25. Carbon abatement strategy

26. Auction strategy

27. Early actions • Voluntary Automated Meter Reading (AMR) • Council currently has ? voluntary AMR • Must be in place by 31 March 2011 • Constitutes ½ of Early Action metric i.e. 50% in Year 1 and 10% thereafter • Pro-active use delivers energy saving c.5% - £?p.a. • Cost per annum £? • Invaluable for CRC compliance • Carbon Trust Standard or verified equivilant • Council currently has / doesn’t have accreditation for X% emissions - expires date • Need to recertify? • Best results require 100% emissions coverage, inc Schools (difficult) • Cost £? plus consultancy fees and admin (if required)

28. Administration • CRC requires administration and management • Understand regulations and requirements • Data collection • Report submission • Data management • Carbon and energy management • Estimate ? man days preparation, ? man days per annum • Many other Local Authorities see CRC management as a full-time equivalent (more if schools are to be managed effectively) • Government estimate £28,500 per annum cost minimum

29. Other issues raised • Raises a number of financial and accounting questions • How will unknown liability/bonus be accounted for? • What are the key considerations for the organisation and the accountancy practice that underpins it? • How will charges, bonuses or penalties be handled within an authorities corporate account? • How does the CRC impact the assessment of investment in energy efficiency or carbon abatement projects? • How will bonuses or penalties resulting from the emissions performance of schools be dealt with? • CIPFA guidance now published

30. The importance of schools • Schools represent ? of CRC Footprint or c.£? • Schools are designated Associated Persons in the regulations - as such they must give all reasonable assistance • NPT must maintain separate records for their schools including: • CRC Footprint data • Residual Measurement List • The regulations do not allow a Local Authority to recover the cost of administering the CRC or buying allowances from the schools or the Dedicated School Grant (DSG) • Current DCFS position - Local Authority to charge schools (or the Schools Budget) any penalties which are incurred through schools failing to reduce their emissions (or apply a bonus). If resolution allows this can be at an individual school level. To be confirmed • Issues raised • Initial cost of allowances • Potential of schools to drag down overall performance and therefore increase costs in the CRC

31. Driving down school emissions • Experience shows that school emissions are increasing • Increased use of IT • Increased use of air conditioning • Increased opening hours & broader curriculum • DEC ratings indicate newer schools are less efficient • No ability to force schools to reduce energy use or to invest in energy saving measures • DCFS current position • Prudential borrowing can be charged to the DSG where the investment results in savings on recurrent expenditure greater than the cost of borrowing but; (difficult, energy price volatility and unknown cost of carbon) • Ring-fencing money within DSG for energy saving measures is difficult as there does not appear to be a way to recover capital through DSG revenue streams

32. 9 Point preparation plan • Inform senior executives and elected members about the CRC and its likely impact on the council. • Liaise with finance teams to ensure allowance purchase, recycling and abatement costs are budgeted for appropriately. • Agree the term and discount to be applied to net present value calculation in the council’s marginal abatement costs model. • Create an asset register of buildings and facilities cross referenced to metered and unmetered supply points. • Inform ? Leisure about the need to collate data and declare their non-participation. • Inform ? schools about the need to collate data and declare their non-participation. • Confirm exact position of supply contracts for associated otganisations • Obtain firm quotations for AMR to cover all large gas supplies and electricity meters above and including Profile Class 3. – Buying Solutions Framework • Decide on whether the council wants to re/accredit for the Carbon Trust Standard. • Develop a Carbon Abatement Strategy.

33. Summary • Council will qualify for the CRC • Council will need to fund allowance purchase • £? in April 2011 • Includes managing schools • Recycling payment is variable and unpredictable • Allowance purchase subject to risk • Additional resources are needed to manage the CRC • A cross-council project board and programme management approach is required, with senior management leadership • CRC is mandatory and subject to heavy fines/criminal conviction for non compliance

34. Thank you Questions?