Notes on Energy and Carbon

We’ve had the Doha Agreement, an Autumn Statement, an Energy Bill and an Energy Generation Strategy all coming once. What does all this mean?

Doha

COP18, the latest round in the United Nations climate change negotiations, closed in Doha at the weekend. There was strong criticism of the way the conference was run, and agreements were only signed after the conference was extended for an extra day. There was a commitment to extend the Kyoto protocol to 2020 with reduction targets of 18% replacing the previous 5%. Even so, these targets fall well short of what science indicates is needed to keep global warming below 2°C. Most countries which refused to sign the original agreement, including the US and Canada – home of tar sands, still remain outside, but Australia has signed up.

In future, funds will be paid by rich countries to developing countries to help them cope with “loss and damage” due to climate change. The US insisted that there should be no implication of liability, and the funds will be called aid, not compensation. Even so, it’s hard not to see this as developed countries finally making up for their actions, although there will be no central fund and no specific criteria for making payments. It’s not clear whether this will be new money over and above existing aid budgets. Lots to debate at next year’s conference in Warsaw.

The next challenge is to sign a global climate change treaty in 2015, committing both developed and developing countries to emissions reductions. The original 1997 Kyoto protocol applied only to developed countries. At that time China was classed as a developing country. Today it is the world’s biggest CO₂ emitter.

UK Energy Futures

20% of electricity generating capacity will close in the next 10 years. The government’s aim is to introduce energy market reforms which will provide stability in the market and encourage £110bn of investment to keep the lights on and enable us to meet our carbon emission targets.
The reforms are complex, including contracts for difference, a government-backed “counterparty” and a “capacity market” designed both to stimulate investment and ensure that there will always be enough generating capacity. Ofgem, the Office for Gas and Electricity Markets, warned last month that the safety margin – the amount of spare generating capacity – could fall from the present 14% to a risky 4% by winter 2015/16. New power stations just cannot be built fast enough to fill that gap.

A Gas Generation Strategy published at the same time as the Autumn Statement reveals that the Chancellor sees gas as the fuel of the future, with plans for 30 new gas-fired power stations, even though Ofgem’s recent report highlighted the risks to energy security from over-reliance on gas.

Gas is far cleaner than coal with much smaller CO₂ emissions per kWh of output. There is also the prospect of vast gas reserves here at home, drilled from rocks beneath our feet. That looks like a win/win situation – reduced emissions and a fuel source under our control. The reality is not so straightforward.

There is no doubt that we will always need some gas generation for the foreseeable future to cope with the peaks and troughs of electricity demand. It still emits CO₂ and it still – for the moment – relies significantly on imports. Fracking – releasing gas by drilling down and breaking up deep rock layers – is still unproven in the UK. Test drillings in the Blackpool area caused localised earthquakes and disposal of contaminated water from the process is still a problem. A clear incentive for gas, coupled with the government’s tinkering with tariffs which makes renewables unattractive, could lead the UK to the worst of both worlds. In 10 years we might find ourselves with polluting gas power stations and no gas from fracking – because we haven’t found any, because the nimbies have stopped it or because the process is too polluting. We already import 20% of our gas from Qatar on the Persian Gulf. Quite apart from political security, if we continue to buy gas on world markets we will have to pay world prices which are bound to rise in line with demand from China and India, as well as from the rest of the developed world.  At present we also get 20% of our gas from Norway, but at current production levels their reserves will last less than 20 years. Even less, if demand increases.

Other Highlights from the Energy Bill:

Decarbonisation targets will be covered by secondary legislation. No decision before the Climate Change Committee reports in 2016, but the National Grid will be given an “indicative range of decarbonisation scenarios”. Many see this as softening the emissions targets, by a method technically known as Kicking it into the Long Grass.

£7.6bn will be made available to help bring renewables from 11% of the UK energy mix to 30% by 2020. In other words trebling the contribution from renewables in just eight years. With such a clear commitment to gas generation, many organisations are very uncomfortable about risking major investment in renewables.

There will be new nuclear stations and commercialisation of carbon capture and storage (CCS). Controversial or what? Nuclear is no short-term solution and there are still doubts about the technology, designs and costs. It is very safe in operation but has very high whole-life costs and the endless problem of waste. The problem is that we live in such a technological society that we need to keep the lights on at any cost, even if that cost is nuclear. Is CCS the new philosopher’s stone? The philosophers  failed to find the magic ingredient to turn lead into gold, so will we be any more successful at turning CO₂ emissions into benign deposits deep below the North Sea? No-one’s done it yet!

Who cares about the Middle East? (or us Europeans?)

In its World Energy Outlook 2012 the International Energy Agency (IEA) predicts that the United States will be producing more oil than Saudi Arabia within five years. The US already imports twice as much oil from Canada as it does from Saudi and with the completion of the planned Keystone XL pipeline this can only increase. (The Keystone XL pipeline will carry crude oil from the tar sands in Alberta to the refineries in Texas.) Partly due to fracking, the US will be the world’s leading natural gas producer by 2015. All this means that America is likely to be self-sufficient in energy by 2035. It will still be wedded to fossil fuels and committed to continuing CO₂ emissions. It will be using far less coal, but exporting increasing amounts to China. We understand that Chinese power stations emit just as much CO₂ from American coal as American ones do.

2035 is a very long way off. Many of us could be retired by then. But if the US does become energy self-sufficient, why would it want a presence in the Middle East? And what will that do for the UK if it’s still relying on gas from the Persian Gulf to fuel Mr Osborne’s power stations?

Fly with me! And to hell with emissions!

President Obama has just signed into law an exemption for US airlines from the European carbon tax (EU-ETS), despite identifying climate change as a major challenge for his second term. Not sure how the US can exempt itself from the laws of other sovereign states – I suppose it just does. A bit like the way US diplomats never pay the London congestion charge. Although a lot more serious.

Reduce, Re-use, Recycle

We all feel good about doing our bit to recycle. Separating out the newspapers, sorting the glass from the cans, even washing out those foil trays from the takeaway. Yes it’s a good thing to do, but we achieve even more if we reduce. We save the energy and materials involved in manufacture, we save the energy in distribution, we save the energy involved in collecting, sorting and reprocessing.

So let’s make REDUCE our 2013 New Year’s Resolution!

Reduce the energy you use. For every kWh of electricity you use, 3kWh go into the power station as fuel. So when you reduce, the saving at the power station is three times as much as what you save at home. And if we’re talking about fuels that have to be imported, like gas, coal or oil, (yes, we import all of these) savings at the power station mean a better balance of trade. Significant savings mean that we’ll need fewer power stations. How realistic are savings?

The Department of Energy and Climate Change (DECC) has recently published a paper with the snappy title of “How Much Energy Could Be Saved By Making Small Changes To Everyday Household Behaviours?” The top six behaviours they come up with are:

1. Turn thermostat down by 2 degrees from 20°C to 18°C (33TWh saved)


2. Turn thermostat down by 1 degree from 19°C to 18°C (16TWh)


3. Delay start of heating from October to November (11TWh)


4. Wear a thick jumper at home in the heating season (6TWh)


5. Replace standard showerhead with a water efficient shower head and use twice every day
(5 TWh)


6. Use radiator valves to turn off heating in unused rooms (4TWh)

To put all this into context, 33TWh (terawatt hours) is roughly equal to the output of Drax, Britain’s biggest power station, or 7% of the nation’s electricity. Turning down the heating is of course going to save more gas than electricity, but that’s no reason for not doing it. By the way, how many people do you know who have their thermostats set as low as 20°C in the first place?

The Green Deal

REDUCE is clearly the government’s New Year’s Resolution through the Green Deal. This is a scheme aimed at domestic properties – homeowners, landlords and social housing providers – which starts in January. If you install insulation, renewable energy or a new boiler you can get a loan to cover the costs and pay it back through an addition to your electricity bill. The idea is that these energy-saving investments will cut your energy costs, offsetting the extra on your bill, so overall your outgoings are the same. Once the loan is paid off you keep all the future savings for yourself. In fact, as electricity costs rise the money value of the savings will increase. You might be in profit even before the loan is paid off.

The first step is to arrange a Green Deal assessment. This is carried out by a registered Independent Assessor, who draws up a plan and estimates the potential savings and costs. You then have to contact one or more Green Deal Providers, who will give you quotations for the work including the financing costs. At that point you’ll be able to see exactly how much will be added to your bill, whether the project truly is viable and how long it will take to pay off.

REDUCE is critical to energy saving. As we’ve seen, for every kWh we save at home we save 3kWk of fuel at the power station. Arguably the Green Deal is the government’s most important green initiative. It could be complex, it could be targeted by cowboys, but if it works it will make a very significant difference.

And finally…CRC

Not many surprises in the Autumn Statement on the Carbon Reduction Commitment (CRC). Before the Statement the CRC helpdesk told me that the Performance League Table for 2011/12 would be out some time this month. If it does come out it will be the last one as Mr Osborne has said it will be abolished in future. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor announced in the Autumn Statement that CRC would be simplified from 2013, presumably in line with the proposals in the latest consultation. “A full review of the effectiveness of the CRC will be held in 2016 and the tax will be a high priority for removal when the public finances allow.”

Meanwhile, civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. You have to ask how it will work and what it will achieve. Top listed companies have to report on the emissions from all their operations, both national and international. This means that some unlisted companies that are CRC participants, like Thames Water or Yorkshire Building Society, will not be required to report. Others will fall into both CRC and GHG. All will become clear in 2013!

Thank you if you’ve read this far. Have a Happy Christmas and a Sustainable New Year.

 

 

 

 

 

 

 

 

CRC due for a change?

Not much has happened recently on the Carbon Reduction Commitment (CRC). The helpdesk tells me that the Performance League Table for 2011/12 will be out some time this month. No great urgency, then. I doubt if we will see a trace in the press unless Manchester United comes to the top again. The Chancellor did mutter something earlier in the year about replacing CRC. Will he announce this in the Autumn Statement on Wednesday, 5th December? As far as I can see he has three options:

•       Leave things as they are and let the “tax” keep rolling in


•       Increase the price of carbon allowances


•       Announce the replacement of the scheme, (no doubt preceded by another consultation)

My prediction is that he will do nothing beyond reducing the list of 28 fuels to four, as already suggested . He will not increase the carbon price because he doesn’t believe in restricting emissions if this will restrict the short-term performance of the economy. He won’t replace the scheme because it will take time and whatever he ends up with will have to yield as much revenue as CRC does at present, so why bother? In any case, the civil servants will be gearing up to administer the new Greenhouse Gas (GHG) reporting requirements. That looks even more complex than CRC, although it won’t raise any revenues. Yet.

Let's see what Wednesday brings!

Green Double Whammy for George Osborne

George Osborne has made no secret of his environmental scepticism and claims that emissions targets and environmental measures could damage British industry. He’ll find it more difficult to maintain this position in the face of today’s call from the world's largest investors for more decisive action by governments on climate change.

The letter from global investor networks representing institutional investors responsible for over $22.5 trillion in assets calls for a new dialogue between investors and governments on climate policy.

They set out seven key tasks, including the need to favour low-carbon investment over high-carbon investment and to stop subsidising fossil fuels. This does not fit well with Osborne’s plan to redevelop Britain’s power stations with a new dash for gas!

The investors conclude that “governments are key in reducing the serious risks, losses and damage that climate change will cause, and the risks to the investments and retirement savings of millions of people. While we commend governments that have implemented supportive policy, much further work is needed to decarbonise economies and portfolios and to stimulate private investment in low-carbon solutions.”

At the same time, the influential Environmental Audit Committee (EAC) is urging the Chancellor to “restore investor confidence” in the government’s energy policy with a clear decarbonisation target.

Joining the growing chorus of calls for a 2030 decarbonisation goal for the power sector in the forthcoming Energy Bill, Committee chair Joan Walley MP says:

“The government needs to reassure investors by setting a clear target in the Energy Bill to clean up the power sector by 2030. A second ‘dash for gas’ could lock the UK into a high-carbon energy system that leaves us vulnerable to rising gas prices.”

The Committee wants the Treasury to explain how new incentives for gas-powered energy generation can be compatible with the UK’s legally binding carbon reduction targets.

Walley also alludes to the much-reported rift between the Treasury and the Department for Energy and Climate Change.

“The Treasury must end the uncertainty on energy policy and give investors and businesses the confidence to seize the enormous opportunities presented by new clean technologies,” she adds.

So what future for the “greenest government ever”?

And what future for us?

Scenario Sandy

Do you ever find that audiences react to long-term scenarios with either disbelief or total resignation that they can do nothing about it? Maybe super-storm Sandy will at least act as a case-study and show people how disruption to things we take for granted can have far-reaching consequences.

New Yorkers have found that once the power goes off they can only stay in touch with the world for only as long as their mobile batteries work. That if they live on the 29^th floor there’s no water because the pumps won’t work. That unless they have a gas hob there’s no hot water and no hot food. No way of washing and no way of escape except down multiple flights of stairs. Once at ground level there’s no petrol, either because the tankers can’t get through or because there’s no electricity to pump it. At the moment all seems to be calm, but if frustration spills over into civil unrest in the next 24 hours that’s cooked Obama’s presidential goose!

Isn’t it tempting to say “NOW do you believe me?” Unfortunately until people experience this sort of thing first hand many remain in denial. Even when we persuade them that unexpected things happen it’s difficult to make them realise that while they can’t stop these events they can usually take sensible precautions to mitigate the effects. Of course there doesn’t seem to be much of a lead from the top. I know we now have record stocks of salt around the country - (just as well – it was snowing the south yesterday) -  but if the power goes off there doesn’t seem to be any plan to cope with darkened traffic lights, closed supermarkets or silent petrol stations. Or maybe the plans are there but the government’s keeping them secret. If so, I hope they are better than the ones they had at the time of the 2000 fuel strike! If not – well, it doesn’t bear thinking about.

Last time I made a presentation one of my delegates said, “You know, whenever I hear you talk I just want to go away and slit my wrists.”  It shouldn’t be like that. How do we get people to take a positive and pragmatic view of the future?

Another Dash for Gas!

Gas companies are announcing price increases of up to 9%, but it looks as though gas will actually be providing cheaper electricity - in the short term at least!

Ed Davey, Energy Secretary, has announced a programme of new gas-fired power stations, and at first sight gas is a dream solution to our energy problems.

Unlike wind, wave or solar, a gas-fired power station can run 24/7. Unlike a coal or nuclear station, it can rapidly run up or run down to meet fluctuations in demand. Gas stations are quick and relatively cheap to build. At the end of their lives there’s no dangerous waste to deal with. CO₂ emissions are far lower than from coal, there’s much less of other greenhouse gases like sulphur dioxide and hardly any particulates. The gas comes along a pipe. It doesn’t need railways or roads for transport, so is unlikely to be disrupted by industrial disputes. A perfect solution all round?

We will always need some gas-fired capacity because of its flexibility in load-balancing, but there are many questions about the present policy of major expansion. Britain’s energy policy needs to deliver security, keeping the lights on 24/7, and affordability, minimising fuel poverty and keeping our industry competitive. We also have national emissions targets, and although gas stations are far cleaner than coal they still emit CO₂.

The Committee on Climate Change, an independent panel of advisors to the Government, said last month that investment in more gas-fired power stations was “incompatible” with the UK’s targets for reducing carbon dioxide emissions, which are legally binding under the Climate Change Act.

At the same time the Aldersgate Group, representing M&S, EDF, Aviva and other major companies, has called upon George Osborne for a clear policy on decarbonising electricity production by 2030. They say “It is essential for Government to provide investors with the long-term confidence they need to transform our electricity market and make investments capable of driving wider economic growth.”

This leaves security and affordability. British North Sea gas has been in decline for a number of years. We now import more gas than we produce. About half of imports comes from Norway and just under half comes from Qatar by ship. Norway is a friendly, stable nation but there are strong suggestions that Norway’s reserves will start to run out and production will decline rapidly after 2020. The next big supplier is Russia. There’s plenty of gas there, but we would be at the very far end of the pipeline. In the past Russia has cut off supplies to whole countries, and other countries further down the line have suffered as a result.

Gas from Qatar comes by tanker. Tankers can go anywhere, and as demand and gas prices rise it would be easy to divert the ships to the highest bidder. And then there’s the Straits of Hormuz problem.  This is the pinch-point at the mouth of the Persian Gulf. If Iran or anyone else decides to blockade the straits, the LNG tankers will be unable to get out. (And the oil tankers will be boxed in as well!)

Is fracking the answer? Fracking, the release of gas from deep rock layers, could give us a new source of UK gas. The Institute of Directors believes fracking could create 35,000 jobs and there’s strong support from the CBI. Fracking still remains controversial. People are mainly concerned that their groundwater will be polluted. More seriously, fracking can destabilise the geology and test drilling in the northwest has already triggered earth tremors. At the end of the day the product is still gas, and burning gas still releases CO₂.

Affordability? There is no doubt that energy, along with many other resources, is becoming scarce and expensive. Switching suppliers and setting up buying groups may have some effect on prices, but the underlying commodity prices will always determine what must be paid in the end. In the medium to long term prices will go up dramatically. In the short term a fleet of new gas power stations may seem attractive and cheap, but it’s likely to turn out to be insecure, expensive and polluting.

So what do we do?

 

 

 

 

CRC or GHG? Welcome back to work!

This week’s cabinet re-shuffle is generally accepted as a move to the right and it also looks like a move away from the green agenda. The coalition’s promise of “the greenest government ever” is long forgotten. Boris Johnson has made no secret of his anger at Justine Greening’s removal from Transport. This is because he’s against the expansion of Heathrow and he thinks her departure will lead to the government changing its mind on a third runway. Last week Tim Yeo urged David Cameron (are you a man or a mouse?) to build the third runway without delay. Tim Yeo is chairman of the Commons Select Committee on Energy and Climate Change. You couldn’t make it up!

Of course Boris isn’t against airport expansion – he just wants a brand new airport in the Thames Estuary. Fine for London and the Southeast, but not so handy for the rest of us! That’s not the issue, though. Such an airport will take at least 20 years to build and probably 50 years to pay for itself. In the short term it will create lots of jobs and the economic growth that all politicians are chasing. In the medium and long term it will make it more and more difficult, if not impossible, to reach our carbon reduction targets. More to the point, within 50 years oil is likely to be so expensive that we’ll think twice about even driving to the airport and air travel will once again be only for the rich. Boris Island or LHR3 will be a white elephant. (Remember, a white elephant was given by Indian rulers to courtiers they didn’t like. It costs so much to maintain a white elephant that it’s expected to bankrupt the owner.) Who will own, or at least underwrite, these new airports? Why, the taxpayer. So that’s all right then!

What’s changed on the CRC front?

For the moment, nothing’s changed. Except that a shift to the right makes it more likely that George Osborne will review the CRC scheme with a view to replacing it.  He threatened to, earlier in the year. We should learn more at the Comprehensive Spending Review (CSR), which is likely to take place shortly after 15^th October.

My predictions? CRC will continue for the moment, at least until the end of the first phase. The Chancellor will therefore collect another £750m next July and again in 2014. This assumes that he stays with £12/tonne. He will have to weigh the temptation of extra revenues from a higher carbon price against the pressures from the business lobby. Again, the CSR will reveal all.

And how does GHG reporting fit into the picture?

There’s been a lot of comment over the summer about greenhouse gas reporting. (GHG) We’re told it demonstrates the government’s firm commitment to the green agenda. Am I missing something? From where I’m standing it looks just like greenwash. Why?

▪                GHG reporting will apply to some 1,100 companies and therefore leave out many of the 2,700 CRC participants.

▪                Companies can choose their own reporting formats. They need to be consistent from year to year but do not need to conform with any other organisations.

▪                Companies must report on Scope 1 and Scope 2 emissions and account for the six Kyoto gases, including fugitive emissions. Given the constant attempts to simplify CRC this looks like a highly complex requirement, but if there is no reporting standard how can it be monitored or regulated?

▪                CRC was set up with a financial performance measurement which was turned into a financial levy. GHG reporting has no financial structure or incentive, so it will be impossible for the government to use it to raise revenue. How will they replace the £750m from the CRC if they scrap the scheme – or will they simply retain it and demand GHG reporting as well? Did someone mention cutting red tape?

Have your say!

The original consultation on GHG reporting took place in 2011. DEFRA has published a Summary of Responses here

A succinct summary is available from the Institute of Environmental Management and Assessment (IEMA) here.

Draft regulations have now been published and are open for consultation. Here are some of the key provisions additional to those mentioned above:

▪       An option to delay the introduction of mandatory GHG reporting until October 2013; to tie in with other planned changes to company reporting;

▪       A planned review of the GHG reports published in the first two years and a decision in 2016 whether mandatory reporting should be imposed on all “large” companies;

▪       The regulations will be made under the Companies Act 2006 and enforced by the Conduct Committee of the Financial Reporting Council (FRC). This means your GHG report will have to be audited.

▪       Transparency is a requirement, but not the method of reporting;

▪       Existing data developed for compliance with the current EU ETS, CRC and CCAs can be used;

▪       The report must include an ‘intensity ratio’, using a financial or activity factor;

▪       Emissions must be reported in tonnes of carbon dioxide equivalence;

▪       The emissions data reported in the first year must be reported in subsequent years to allow comparison.

You have until 17th October 2012 to respond.

If yours is not a quoted company then of course you are outside the GHG net. The public sector is completely excluded as well. Apparently the further consultation in 2015/16 could bring another 24,000 organisations into the net. But hey – that’s three years off, and the other side of a general election! Well there’s nothing urgent about carbon reduction is there?

If you’d like to talk about your corporate carbon footprint, about sustainable business strategies or scenario planning for sustainable survival, you can email me or call 07803 616877.

 

Anthony Day

First CRC Penalties

£99,000 of civil penalties have been levied on four participants of the Carbon Reduction Commitment Energy Efficiency Scheme (CRC) for failing to provide reports on time.

The four companies, Saur (UK) Ltd, Henkel Ltd, BI Group plc and Tomkins Ltd were fined £41,000, £38,000, £10,000 and £10,000 respectively and although the fines seem steep they are set as described in the CRC Energy Efficiency Scheme Order 2010. In fact in two of the cases (BI Group plc and Tomkins Ltd) discretion was exercised resulting in a reduction of the penalty imposed. These companies, the administrator judged, had taken all reasonable steps to comply or rectified the failure as soon as possible.

The reports that these companies had failed to provide were those for the first year (2010/11) of phase one, where CRC participants were obliged to provide a footprint report and an annual report by the end of July.

These penalties show that the enforcement agencies are taking non-compliance seriously, in spite of doubts about the future of the CRC.

They also serve as a reminder to participants that annual reports for the reporting year 2011/12 should have been submitted by 31st July 2012, allowances  paid for by 31st July and that the allowances should be surrendered by the 28th September 2012 deadline.

August – and it’s all gone quiet

The Olympics are over, and everyone seems to have gone on holiday.

What have we got to look forward to when we get back? CRC is still with us for the foreseeable future. There were suggestions that it would be abolished in the Autumn, or replaced with something simpler, but will the Chancellor give up the £750m it yielded this year?

Mandatory Greenhouse Gas Reporting (GHG) has had wide press coverage. It’s been hailed as an example of the UK being a world leader in carbon management. How can this be?

• It will apply to UK-registered companies quoted on the Main Market of the London Stock Exchange, European exchanges, NYSE or NASDAQ. That’s about 1,800 companies, whereas CRC covers 2,700.


• The proposals are to monitor the six Kyoto gases. There are constant calls for CRC to be simplified, and that scheme only monitors the one gas – CO₂. They are even talking about including Scope 3 emissions (created by your product in the hands of your customer.)


•  There are no plans to impose penalties or charges for emissions.


• There is no standard methodology required for reporting.


• The whole consultation is very vague (only 6 pages.)

Greenwash, anyone? Oh, I forgot, it’s the silly season.

Hopefully there’ll be some sense by the time the consultation closes on 17^th October, but aren’t we leaving things a bit late? If the government is truly going to reduce the nation’s emissions by 80% by 2050 or even 30% by 2020, is a vague scheme which will allow people to report in any way they like really going to make a difference?

This certainly looks less and less like the greenest government ever. Was I really naïve enough to believe the hype?

In September, our new Sustainability Works website launches, based on my new keynote speech and my book of the same title.

You can keep ahead of the game because the book is AVAILABLE NOW on Kindle. 

 

LEDs lighten the lighting load

Pay CRC PDQ. Is GHG your new USP?

CRC payments are due tomorrow – 31st July – which means the money must be cleared and in the government’s bank account by then.

Although it’s likely that the Chancellor will announce a consultation in September on replacing the CRC, it’s not over yet. The scheme could survive until the end of the first phase, which means that we’ll be reporting – and paying – right through to July 2014.

If the CRC is replaced, something will have to be done to replace the government’s £750m revenue from the sale of allowances.

There’s another consultation out since last week. DEFRA wants your opinion on the Greenhouse Gas Reporting draft regulations. Answers, please, by 17^th October.  At the moment the suggestion is that they will review reports by quoted companies in 2015 and consider widening the net in 2016 to include other large organisations. There is no suggestion of financial levies or penalties, but then, CRC was supposed to be financially neutral.

There is already controversy over the GHG Reporting proposals, particularly that no consistent method is required for measuring emissions. This and other concerns are raised in a recent Guardian blog. The idea of reporting is that shareholders and stakeholders will be made aware of the risks that the reporting companies face and presumably will encourage them to act responsibly. Doesn’t all this sound incredibly laid-back? Doesn’t it sound as though we’ve got all the time in the world?

So how is the government going to maintain or replace its CRC revenues? In the short term, while the scheme still exists, it could get the goose to lay as many golden eggs as possible by raising the price of carbon allowances. Watch out for the Chancellor’s Autumn Statement in October! Or maybe they’ll follow the example of the Australians, who are now taxing major CO_2e emissions from landfill at AU$23/tonne (£15.35). Or perhaps they’ll do both. But will it really make a difference?

Managing emissions is only one part of sustainability. I’ve just published a review of the issues called Sustainability Works. You can buy it for your Kindle here for only £1. Or if you’d like a free copy send me an email and I’ll let you have a link to the pdf version.

Something to read on holiday – and if you’re going on holiday have a good one!

 

 

Major investment in energy infrastructure - but is it enough?

OFGEM has announced a £22 billion upgrade to the nation's gas and electricity networks, but National Grid says it's not enough. There's no doubt that if we increase our use of electricity, in particular by using electric cars, we're going to need much more distribution capacity. Equally, as long as we remain committed to fossil fuels, gas is the cleanest. Hence the need to upgrade the gas pipelines as well. National Grid says that the amount authorised by OFGEM is not enough. OFGEM have done their sums differently and say that some work should be done more efficiently and that National Grid has over-estimated the cost of capital. Either way, the cost will find its way on to electricity bills - the consumer will pay in the end. Here's a comment from the Telegraph.

I see in the papers that shadowy City types have not just been manipulating LIBOR but have been playing with the oil price as well. We've been paying too much for petrol. Compensation? Fat chance! One thing we can be sure of: energy will go up. It's a finite resource and we still waste far too much of it.

GVis2012 – Sustainability in Construction

If you missed last week’s GVis2012 half-day conference in Leeds, here’s my take on it.

The event was challenging from two points of view. First of all, the programme packed a considerable amount of sustainability information into 3½ hours. Secondly it pushed the technical envelope with Twitterfeed, simultaneous webcast and speakers from across the world presenting via Skype. The session closed with four 20x20 presentations – 20 slides with a maximum of 20 seconds each, so there was no loss of pace there!

Plenary sessions were followed by four parallel breakout sessions. Delegates had to choose two of four, so these are my comments on the parts of the conference that I was able to take part in – as a non-expert in property issues.

The session was ably led by Paula Widdowson of CSR-i. She was able to start by bringing us up to date on the latest news for local sustainability – the government’s CITY DEAL announcement promising £1bn for improving east-west transport links, Leeds as a centre for pioneering the green economy and £50m of new money for environmental projects.

Our first speaker was Mel Starrs from PRP Environmental. She said that CSR is sometimes seen as a criticism whereas it should be a communication process. A means by which visions, ethics and beliefs are made explicit; making people accountable to specific commitments. In an ideal world sustainability consultants will make themselves redundant, although she admitted that that was some way off. Although the theme of the event was construction, there was a great deal of solid information for sustainability specialists in all fields in Mel’s presentation and throughout the programme. She quoted cases studies: Patagonia Outdoor Clothes and InterfaceFlor. She spoke about BREEAM (Building Research Establishment Environmental Assessment Method but you knew that), and how productivity is better in green buildings with natural ventilation and natural light. Despite this only 6% of new buildings are BREEAM certified. There are leaders, however. Apparently the greenest tenants are the oil companies and banks. Well, nobody’s all bad. You can find Mel’s detailed summary of her presentation here: http://ow.ly/c541I

For the first breakout session I chose the Living Building Challenge, presented via Skype by Eden Bruckman in California. This was a challenge, not least because all the sessions took place in the same room and the sound from California was weak. Martin Brown controlled the presentation at the Leeds end. The Living Building Challenge goes a whole lot further than BREEAM or equivalent US standards and if the BREEAM uptake is relatively low what hope for something far more demanding? However if we don’t set high targets we’ll never achieve excellence. The objectives include net zero water use and net zero energy use – nothing more than current solar income. All materials must come from proven sustainable sources. It’s a whole philosophy. The aim is to establish “collaboratives” throughout the world. So far there are some 140 projects; the nearest to the UK is a project in Ireland.

My next roundtable session was on CSR and Competitive Advantage, led by Pedro Pablo Cardoso-Castro from Leeds Business School. We started by viewing Michael Porter’s keynote address to the 2012 Corporate Philanthropy Summit. Business is under pressure and facing greater challenges than ever, but in many cases CSR is a bolt-on with a finite budget and is not achieving solutions  to these problems. It is time for a totally integrated strategy (cf Bob Willard’s Stage 4). Business can deliver solutions, but business is business and not charity.

Some organisations have dropped the S from CSR, but Pedro gave examples of organisations where the social aspect has been fundamental to their strategy. ALFA Ceramica in Colombia needed to maintain employment in the face of falling domestic demand. As a company owned by Opus Dei, the commercial arm of the Catholic Church, they saw a duty to protect their employees. They created upmarket tiles and mosaics and exploited markets in Europe. They developed a system of traceability so that purchasers of unique designs could link them back to the family that made them. Corona, their major competitor, followed a similar policy but diversified into kitchens and bathrooms and concentrated on the US market. Corona provides its employees with training in social development and joins ALFA in the belief that strong business depends on strong society. (Come back Titus Salt!) This approach has been vindicated by the fact that both these organisations remained profitable during recession.

Mention was also made of Marshalls, a sustainability success story from here in Yorkshire, and of how they invest in their people in India, a country which provides much of their raw material.

Tamara Bergkamp of the Global Reporting Initiative gave a keynote speech from the Netherlands via Skype. She repeated the well-known wisdom: what you don’t measure you can’t manage and added that what you can’t manage you can’t change. She championed the business case for reporting and at that point my pen ran out, but you’ll find much more on the website.

I thought Pecha Kucha was an abandoned temple in South America but apparently it’s another name for 20x20 presentations.

First up was Faye Jenkins of Laing O’Rourke who explained the benefits of apprenticeships in the construction industry and the problems caused because school leavers have very little idea of the range of trades and opportunities available. Only eight slides, but a strong message.

I think Rick Hamilton, co2sense, has done this before. Twenty slides, not one up for more than 20 seconds. The trouble is that everything now went so fast that his presentation blurred into the ones by Martin Brown of Fairsnape and Eddie Murphy of Mott Macdonald. They mentioned the ecology of commerce, HIUT Denim, Agenda 21, Skanska, #GVisChat, #EndFossilFuelSubsidy, and told us that “CSR needs to shift from doing less bad”. I couldn’t absorb any more!

Thanks to all for a most stimulating afternoon.

We’re promised that the slides will be up on the website. In the meantime have a look at this.

Booklist

Several books were mentioned during the event. You might want to look them up if you haven’t already heard of them.

• Let My People Go Surfing -  Yvon Chouinard


• 2052: A Global Forecast for the Next Forty Years


• The Ecology of Commerce, a declaration of sustainability


• Confessions of a Radical Industrialist


• Common Wealth: Economics for a Crowded Planet

The next Tweetchat at #GVisChat will be at 20.00 on 26^th July.

The Other Side of Peak Oil

Electricity could be the transport fuel of the future – but will we develop the infrastructure in time?

In the 1950s, much to everyone’s disbelief, M King Hubbert came up with his theory of Peak Oil, and claimed that all the world’s oil was going to run out. Production would reach a maximum and then start to decline. In fact US oil production reached a peak in 1971, but nobody has determined exactly when we will reach the global limit, although it’s generally expected in the next couple of decades. Now an article in New Scientist (19th May) suggests that we’ll reach the peak not because of a failure in supply, but because of a failure of demand.

Some 50% of the 85m barrels of oil that the world consumes each day is used for transport. It’s a fossil fuel and a major contributor to global CO2. The author’s belief is that technology will dramatically cut transport fuel consumption, largely because the electric car will capture a major – even dominant – share of the market within only one or two decades.

The efficiency of the petrol car has improved dramatically over the last 20 years or so. New technology with turbochargers and direct fuel injection will improve it even more. In terms of emissions, however, the pure electric car is far cleaner; the emissions at the power station per mile are far lower than those of the traditional internal combustion vehicle. The cost of electricity is dramatically lower at around one fifth of the cost of petrol per kilometre, at European prices. The problem with the electric car is its notoriously limited range and its very high initial cost. Batteries, a major element of cost, are expected to fall in price as demand increases, but that still leaves the problem of range. Rapid recharge still takes at least 30 minutes, and recharging two or three times on a long journey is not acceptable. Battery exchange looks a more viable option. The vehicle arrives at the exchange station and robots remove the battery and replace it with a fully-charged unit in about the same time as it takes to fill a petrol tank. The technology exists, but so far there are few exchange stations.

The hybrid car is a halfway-house. Economy is improved by using the energy from regenerative braking – otherwise wasted – to charge a battery to drive an electric motor to support the petrol engine. In July Toyota launches its plug-in hybrid. In addition to the hybrid technology the car may be charged from a domestic socket to run on battery power for 15 miles. If your journey is longer than that then the petrol engine cuts in seamlessly for the rest of the trip. The savings will only be worthwhile for high mileage users, as the car will cost around £27,000, even after the UK government’s £5,000 subsidy. Other hybrids like the Vauxhall Ampera come in at £38,000.

If electricity is the future, the key question is where is it all going to come from? In the UK we are facing problems with meeting the existing demand for electricity. The government has finally announced its commitment to a new generation of nuclear power stations, but because it will take at least 10 years to get new stations in commission, existing stations are being authorised to run beyond their originally expected lifetimes. There are technical issues with the proposed design of new stations – similar stations are years behind their construction targets. There are political issues. EDF, 85% owned by the French government, is the only serious bidder for the UK nuclear construction programme. The new French president is not a supporter of nuclear power. And then there’s the infrastructure – new pylon routes and a network of exchange or recharging stations.

Electricity is attractive, but how soon it can be practical is open to doubt. Peak Oil, with rocketing prices and unpredictable supply, may not have gone away quite yet!

IIGCC urges EU ministers to revise the Emissions Trading Scheme

 Ahead of a meeting of EU ministers on April 19th, to discuss the future of the European Union’s Emissions Trading Scheme (ETS), the Institutional Investors Group on Climate Change (IIGCC), whose members represent EUR7.5trillion in assets under management, urged ministers to consider changes which would ensure the continued viability of the ETS. The IIGCC makes three recommendations EU ministers should consider to support an improved Emissions Trading Scheme:

• A change in the overall level of ambition of the EU’s 2020 emissions target, with a commensurate change in the EU ETS allocations


• An immediate action to define and implement, as soon as possible, a one off set- aside of carbon credits in order to remove oversupply from the system


• Pre-agreed review processes to cope with unforeseen economic circumstances in future
  
  Stephanie Pfeifer, Executive Director of the IIGCC, said:
  
  “The European Union’s Emissions Trading Scheme is not producing the outcomes originally envisaged and needs fixing.
  
  “The EU ETS was expected to support emission reductions by catalysing innovation and driving investment in low carbon solutions. This is not happening. Carbon credit prices have fallen dramatically as a result of oversupply in the system. At under seven euros per tonne, the carbon price is not even high enough to support a switch from coal to gas.
  
  “As long-term investors, IIGCC members are concerned that current exceptionally low carbon prices fail to create strong enough conditions for private investors to allocate capital to low- carbon energy sources. With the potential for climate change to have major negative impacts on the economic systems in which they operate and on the assets in which they invest, investors are calling for decisive action
  
  “When EU Ministers sit down to discuss the future of the carbon market at a meeting tomorrow, 19 April, we urge them to show leadership and implement measures which boost the carbon price and help stimulate private investment in low carbon solutions.”

Carbon Capture and Storage - New research from UKERC shows tough road ahead to realise potential.

Following the government’s announcement of £1bn to support the development of Carbon Capture and Storage (CCS) the UK Energy Research Centre today publishes a report which is cautiously optimistic about the technology. It identifies four key issues which the government must address:

1. Choice of technologies. There are several different options but so far no clear indication of which will be best. For the moment the government should not attempt to save money by backing a single solution.


2. There must be financial support, not financial regulation. Penalties for emissions cannot be effective until abatement technologies exist.


3. Developing the technology will take a long time and will essentially be unpredictable. There may be a tipping point where it becomes clear that public money would be better spent on other methods of reducing carbon emissions.


4. There will be a long-term storage liability. Government must take lessons from the nuclear industry and protect the interests of future generations.

Clearly CCS is no quick fix. We hope that the government will also look at short-term cost-saving projects to cut carbon and improve energy efficiency without waiting for CCS to prove itself. (Or not)

 

The full text of the report can be found at
http://www.ukerc.ac.uk/support/tiki-read_article.php?articleId=1881

CRC – Consultation on Simplification

Introduction

Opening the Consultation

The Department for Energy and Climate Change (DECC) published its latest consultation on the Carbon Reduction Commitment Energy Efficiency Scheme on 27^th March 2012. The proposal document is accompanied by an impact assessment and a report from KPMG on the costs incurred by participants in setting up and managing compliance with the scheme.

There are 46 proposals, many of which have already been put forward. Some will simplify the process by reducing the scope of the scheme. Others attempt to simplify it by changing parts of the scheme which have proved difficult to interpret and have led to confusion.

We thought that the proposals would relate only to Phase II, but tucked away at the end of the document is the question (paraphrased) “Do you agree with bringing in the simplifications at the beginning of Phase II, or would you like to see them in place for the final years of Phase I?” As you will remember, Phase II starts in 2013/14 for new participants, but 2013/14 is the last year of Phase I for existing participants. (Simples!)

Closing the Scheme?

In his budget statement George Osborne said that the CRC scheme might be closed “should very significant administrative savings not be deliverable”.  The KPMG report on costs concluded that the principal costs were incurred in setting the scheme up and that they would be significantly reduced in subsequent years. They calculated that for every tonne of CO₂ reported, the administration cost in the first year averaged £1.36 but only £0.11 per tonne for each of the remaining years of Phase 1. On this basis it could be argued that significant administrative savings are on the way, so there’s no need to close the scheme. On the other hand, many people are already arguing that it should be closed and replaced by changes to CCL and CCA, but that’s another debate. (See question 37)

Here is a summary of the proposals. The proposal number is indicated at the end of each paragraph. Some are quite complex, especially the ones about simplification. Some will lead to debate and need further clarification. If in doubt, refer to the full text at http://www.decc.gov.uk/en/content/cms/consultations/crc_simp_cons/crc_simp_cons.aspx

The Details

Things we expected

• The list of fuels to be reported on is cut from 29 to 4: electricity and gas, and gas oil and kerosene used for heating.
  
  
  
  • Bottled gas and gas used directly for electricity generation will be excluded.
  
  
  • Self-supplied gas will be included only when it is natural gas.
  
  
  • Bio-methane and other gases will be excluded.
  
  
  • The 90% rule is abolished
  
  
  • There will be no residual measurement list and no distinction between core and residual energy
  
  
  • No footprint reports in future
  
  
  
  

Things to make life simpler

• 
  
  
  
  • Qualification will be based on supplies through settled half-hourly meters only. (1)
  
  
  • Automatic registration. Most participants in Phase I will also participate in Phase II and will have to register in 2013. If there is no change, details will not need to be re-entered but will be carried across automatically from the original registration. (3)
  
  
  • Class 01 and class 02 electricity meters to be excluded, since these are almost always for domestic supplies. For the same reason gas meters registering less than 73,200kWh per annum will also be excluded. (7)
  
  
  • Gas, gas oil or kerosene used to power CHP will be excluded. However, the Electricity Generation Credit (EGC) will be removed from such plants.
  
  
  • CRC emission factors to be aligned with DEFRA’s Greenhouse Gas Reporting Guidelines. As we move towards mandatory GHG reporting it make sense to have universal values.
  
  
  • CCA facilities and EU ETS installations to be removed from the scope of CRC. The intention has always been to avoid double taxation of emissions but participants have found the existing rules very complex. This proposal appears to be for the blanket exclusion of CCA facilities and EU ETS installations from the scheme, but those units will be tightly defined. Exemption will only apply to those parts of an SGU or site which are directly affected by CCA or EU ETS. The rest of the activity will be covered as before.
  
  
  • Increased flexibility to disaggregate. SGUs will be able to disaggregate regardless of size, allowing groups to participate more in line with their financial reporting structures and corporate GHG reporting requirements. If a parent’s consumption falls below the qualifying level following the disaggregation of a subsidiary, that parent still has to participate. Disaggregation will require the mutual consent of the units involved. Disaggregation will be permitted on an annual basis. (19/20/21/22)
  
  
  • Allowance Sales will be carried out after the end of each compliance year for the rest of Phase I. The government has confirmed the price of £12/tCO₂ for 2011/12 and the same price was confirmed in the Budget for 2012/13. For Phase II there will no longer be a cap on allowances and there will be no safety valve. Instead there will be two fixed price sales; one before the end of the compliance year and one after the year-end at a higher price. Participants who have surplus allowances will be able to trade them on a secondary market. (It’s difficult to see how this would arise, unless they bought too many at the first sale before the year-end.) It will be possible to bank allowances and to sell them to other participants or to keep them for a later year. It will still not be permissible to bank allowances from one phase to another. At the end of Phase I any surplus allowances held will simply expire. (34/35/36/37/38)
  
  
  • Surrender Deadline. This will be deferred to the end of September from  2013. Allowances for 2011/12 still have to be surrendered by the last working day of July 2012. (39)
  
  
  • 2013/14 – only one Annual Report. As noted above, 2013/14 is both the last year of Phase I and the first year of Phase II.  The government will accept a single annual report for both purposes. (40)
  
  
  • Retaining Records. This is generally reduced to 6 years. Previously some records had to be held for as much as 12 years. (41)
  
  
  • Timing of Changes. Do you want to wait for Phase II, or would you like to see some changes introduced earlier?  An example which DECC suggests is bringing in the reduced fuel list.
  
  
  
  

Things we’ll need to think about

The rest of the document deals with particularly complex issues and special situations. In several cases the proposals are not specific; rather a request for participants to submit their own ideas. Here is a summary of the main points. Again, the proposal number is given after each paragraph. (Note that proposal numbers are not the same as question numbers.)

• Supply at the direction of another party. This covers the situation where a third party is involved in procuring the energy. That company would be liable under CRC, but might claim relief in respect of ‘unconsumed supply’. Is this an attempt to clarify the PFI situation? In some circumstances a PFI operator purchases the energy and provides it to the building user as part of the package without separate itemisation. (4)


• Payment requirement. At present payment must pass to confirm a supply relationship, but this will not be required in future. Again, this may be intended to clarify the PFI situation if building users are not specifically charged for energy. (5)


• Unmetered supplies. The proposed changes will mainly affect local authorities and their use of energy for street lighting. Certain types of unmetered supply currently fall outside the scope of CRC. The proposal is intended to close this loophole. (6)


• Unconsumed supply. Proposal 8 does not apply in a landlord/tenant situation. Where an organisation procures energy and supplies all or part of it to a third party it can only claim that that energy is unconsumed if it has a supplier relationship, including metering, with that third party. There are scenarios and diagrams in the consultation document to explain what is intended. Going back to the PFI situation: if a PFI operator is supplying energy to a building there will be a meter which shows how much energy is being supplied to that building. The operator can claim that there is a supplier relationship even if there is no specific charge for energy because proposal 5 removes the payment requirement for defining supply. The PFI operator will claim unconsumed supply and the energy will be the responsibility of the operator of the building for CRC. (8)


• Ground lease – landlord/tenant. The government does not propose any radical change to the landlord/tenant rules which have given rise to much disagreement and confusion, but the consultation does ask for suggestions. They claim that no clear consensus has so far come from stakeholders. The one change they do propose is that where the lease is for the land only, and the building and all related services are solely the responsibility of the tenant, then the landlord will not be responsible under CRC. The ground lease must be for a minimum of 40 years. (9)


• Modification to self-supply exclusions and cross-licensed activities. Broadens the exclusion of energy used for the transmission of energy. (10)


• Revised emissions factor for self-supplied electricity. Corrects for the fact that there are no transmission losses for electricity consumed at the point of generation. (11)


• Energy Suppliers’ Statements. The government will work with energy suppliers to ensure that their statements are more in line with CRC requirements. In some cases the information has been incomplete so that participants have suffered the 10% penalty for estimating. From Phase II the requirements for the timing of readings will be more flexible. Suppliers of gas oil and kerosene will also be required to provide statements. (15/16)


• Electricity Generating Credits (EGCs). These credits are awarded to very small generators and offset the emissions from the fuel to the generating process. Under proposal 10 this fuel will be excluded, so the EGCs will be withdrawn. The net effect should be negligible. (18)

 

The remaining proposals are quite specific, relating to Academies, to designated changes and post-qualification organisational changes. Organisations which are directly affected by these issues should review proposals 23, 24, 25 and 26 and take professional advice as appropriate.

 

There are general questions on whether the parameters of the Performance League Table should be moved from law into guidance, whether independent third parties should be appointed to hear appeals and whether Scottish ministers should continue to hear Scottish appeals.

 

Finally, participants are asked if they could report emissions by geographic region, and are invited to provide details of their administrative costs broken down by one-off, registration, annual report and external costs.

 

Wouldn’t it just be simpler to load it all on to the Climate Change Levy?

 

 

 

 

CRC - Latest Consultation Published

DECC has today published its latest consultation on simplifying the CRC. Maybe that means it won't be abolished despite George Osborne's hints!

We have until 18th June to respond and there will be information sessions in London and Manchester - dates to be announced. I'm off to read the documents now. I'll let you know what I think.

Full details of the consultation are here.

CRC - not much in the Budget!

There was so little in the budget about the Carbon Reduction Commitment that the Chancellor decided to repeat most of it in three different places.

Here’s what he actually said:

“…the Government will consult on simplifying the Carbon Reduction Commitment (CRC) energy
 efficiency scheme to reduce administrative burdens on business. Should very significant administrative savings not be deliverable, the Government will bring forward proposals in autumn 2012 to replace CRC revenues with an alternative environmental tax, and will engage with business before then to identify potential options.”

So there’s going to be a consultation (again). We’re already expecting a consultation on phase 2 to be published next Tuesday 27^th March, but there will also be proposals brought forward in autumn 2012. At least they will be brought forward if very significant administrative savings are not deliverable. Surely administrative costs will be relatively low going forward; the major investment was in setting up all the systems in the first place. If the eventual decision is to dump CRC and replace the revenues with an alternative environmental tax this will not satisfy demands from Vince Cable, the CBI and the EEF to reduce the tax burden on business. In this centenary year of the Titanic it will merely be a re-arrangement of deckchairs.

The other important thing the Chancellor said relates to the carbon price:

“Allowances sold with respect to 2012–13 emissions will be £12 per tonne of carbon dioxide.”

We knew this was the price for 2011-12; now we have some certainty for next year as well and it’s not at the £16/tonne that some predicted.

Pity he couldn’t give us a 5-year fix!

 

 

Hello, I'm Anthony Day

I've been writing about the Carbon Reduction Commitment, Sustainable Business and Energy Security for a while now. You can find my articles at www.cyber-associates.com/news . I've had a number of comments, but there's no way of publishing them on that site.

In future I'll set out my views here and I look forward to your agreements, disagreements, comments and chat!