CRC Energy Efficiency Scheme

1. CRC Energy Efficiency Scheme Aberdeen, 26th May 2010 Simon Francis, DECC CRC Team

2. Why CRC? To incentivise energy efficiency in large energy users BECAUSE users are not taking up the energy savings which would save them money • Mandatory participation for large energy users - those who spend ≈ £0.5m a year on electricity • CRC will create greater reputational drivers for organisations to act - Performance League Table • Financial drivers – cost of allowances and revenue recycling (but those of CRC are a fraction of the savings from reduced energy bills)

3. Key points • CRC mandatory energy efficiency scheme which will : • Incentivise energy efficiency and reduce energy use • Foster behaviour and infrastructure change • Deliver carbon emissions reductions • CO2 emissions reduction ensured by cap • Method of reductions determined by participants • Revenue neutral to the Exchequer • Designed to avoid overlap with emissions covered under EU ETS and CCAs

4. Organisational structure For determining qualification & participating, undertakings will be grouped under the highest parent undertaking where the ‘parent’- • Holds a majority of voting rights in an undertaking • Has the right to appoint or remove a majority of an undertaking’s board of directors • Has the right to exercise a dominant influence over an undertaking (see Section1162 of the Companies Act 2006 for full text) Where there is no parent relationship as above, the undertaking must assess CRC qualification in its own right.

5. Qualification • Organisation has at least one Half-Hourly (HH) Meter settled on the HH Market • Organisation HH electricity consumption exceeded 6,000 MWh over the course of 2008 • HH electricity use must include • Mandatory HH meters • Voluntary HH meters • Remotely read AMR • Pseudo HH metering readings

6. CRC - electricity supply & generation • Policy intent – to incentivise energy efficiency regardless of where, how and by whom the electricity was generated • Therefore large electricity users need CRC allowances at the point of deemed supply under CRC – this is in addition to any EU ETS (or CRC) allowances required at point of generation • Participants will not have to surrender CRC allowances for EU ETS ‘permitted emissions’ • Participants may have to surrender CRC allowances for electricity supplied to an EU ETS installation (if core or on RML) • Electricity Generating Credits available in limited circumstances for non-EU ETS installations.

7. CRC supply rules (applicable to electricity, gas and fuels) Supply definition one • ‘A’ agrees with ‘B’ that ‘B’ will supply electricity to ‘A’ and that ‘A’ will pay ‘B’ for that supply • ‘A’ receives a supply further to that agreement • The supply is measured by a metering device * or is a dynamic supply OR... Supply definition two (‘self-supply’) • Where a public body or undertaking supplies electricity to itself for purposes other than generation, transmission or distribution of electricity. * not relevant for fuels

8. 1. Overview EU ETS installation operator of EU ETS installation customer Input fuel (gas or fuel) captured under ETS but no allowances needed in CRC Electricity: Doesn’t meet supply definition 1 Not a supply under CRC: no CRC allowances Customer responsible for surrendering CRC allowances if a core supply or included in residual measurement list (RML) Meets supply definition 1 Supply definition 2 (‘self supply’) – operator needs CRC allowances for own electricity use unless licensed/exempt activities. No Electricity Generating Credits (EGC)

9. 2. Overview non-EU ETS installation operator of non-EU ETS installation customer Electricity doesn’t meet supply definition 1 Input fuel classified as supply if core gas or fuel source listed on RML –  responsibility of operator (zero if renewable) Not a supply under CRC: no CRC allowances Customer responsible for surrendering CRC allowances if a core supply or included in residual measurement list (RML) Electricity meets supply definition 1 Supply definition 2 (‘self supply’) – operator needs CRC allowances for own electricity use unless licensed/exempt activities. Operator may be eligible for EGCs from value of electricity generated – if no ROCs/FITs claimed and supply/self-supply definition met

10. Supply rules – participants & undertakings Undertaking 2 Undertaking 1 Can’t be self-supply (def 2). Potentially ‘supply def 1’ Potentially self-supply (def 2) EGCs potentially available at the participant level for either supply or self-supply CRC participant boundary

11. Emissioncoverage – core sources • All half hourly meters • Meters profile classes 5 – 8 • Daily-read gas meters • Hourly gas meters • Non-daily metered gas > 73,200 kWh/annum

12. Emission coverage 90% rule • 90% of Footprint regulated by either EU ETS, CCA or CRC (the ‘Residual Percentage’) • Core Sources included on mandatory basis • Must include non-core sources to reach 90% • Can include non-core sources voluntarily if above 90% • Recorded on the Residual Measurement List

13. Key components of the CRC • Excluded from CRC • Transport energy use • Domestic energy use • Energy not for own use (except Landlord/tenant) • Energy not for supply in the UK (* def. of UK includes UK coastal waters and the UK sector of the continental shelf) • Penalties • Scheme has financial penalties which are proportionate to the offences. • Failure to comply with key obligations • Criminal offences in the case of falsification or non-compliance with enforcement.

14. Key components of the CRC • Revenue Recycling - Performance League Table • Adds financial and reputational incentives • Based on 3 weighted metrics: • voluntary early action metric (Extent of voluntary AMR and extent of Carbon Trust Standard or recognised equivalent) • compulsory absolute metric (Change in annual emissions relative topreceding 5 year average) • voluntary growth metric (Change in emissions per unit turnover/revenue expenditure) • Bonus or penalty payment based on position in league table

15. November 2008 April July Timeline – Introductory Phase July July October October April Start of the Introductory Phase • 1st Annual Reporting Year • Start of the Footprint Year 2nd annual reporting year Start of 3rd annual reporting year Start of Qualification Lasts until 31 December 2008 Start of Registration Period Lasts until 30 September 2010 1st sale of allowances 2nd sale of allowances 1st Recycling payment 2nd Recycling payment 2010 2012 2013 2009 2011 EA sent letters on qualification guidance to organisations with mandatory HHM. 1st Annual Report due 2nd Annual Report due 3rd Annual Report due Footprint Report due Allowances surrendered for 2nd year Allowances surrendered for 3rd year

16. Furtherinformation DECC CRC web pages http://www.decc.gov.uk/crc EA CRC web pages http://www.environment-agency.gov.uk/crc Any further queries CRCHELP@environment-agency.gov.uk