Health sector at the top of the premier carbon league?

Carbon trading may seem a little esoteric and divorced from the business of delivering health services to the public but for most health sector bodies, 30 September provides a tangible deadline for ensuring that plans to deal with it are agreed and in place. By that date, virtually all UK organisations with half-hourly metering installed must have completed registration for the CRC Energy Efficiency Scheme with the administrator, the Environment Agency.
   
Those consuming more than 6,000MWh (an annual electricity bill in excess of about £500,000) will have to participate in the scheme – it is mandatory. However, even those using less power – between 3,000 and 6,000MWh – must make a disclosure to the EA to demonstrate that they do not have to take part. Failure to register or make a disclosure by the end of September will result in fines of up to £5,000.
   
The evidence so far is that many organisations are not on target to meet the deadline. If you fit into that category, then ESTA’s advice is – don’t panic! There is plenty of help available, both directly from the government (on the CRC EES pages on the Defra website) and from practitioners and their professional associations. ESTA and its members have a great deal of expertise in managing energy and carbon performance. But do access that help now, as the deadline is just a few weeks away and you will need to gather information and present it in a specific format for the Environment Agency.

INITIAL REQUIREMENTS
To register, you will need to provide details of your qualifying consumption. But this is only the first step. The “footprint year” runs from April 2010 to March 2011. This will provide the baseline against which future performance will be measured.
   
At least 90 per cent of energy use needs to be accounted for, which will probably mean (especially for estates with a number of smaller sites) that records for those without half-hourly meters will also need to be included. Producing the amount of detail needed for the accounts will require significant effort. However, the use of automatic Monitoring & Targeting (aM&T) software systems can dramatically reduce the time and complexity of the process.
   
The initial years of the Scheme, through to 2013, will see a fixed price for emissions allowances: it has been set at £12 per tonne for the initial purchase (there will also be a spot market for any adjustments you need to make against your actual emissions – either selling or buying). After that period, allowances will all be bought at sold at auction or on the spot market; in other words the price will vary from day-to-day and from month-to-month.
   
One of the key provisions of the Scheme is that the funds raised will be recycled to participants – it is, as far as the Exchequer is concerned – revenue neutral. However, it is not revenue-neutral for participants; otherwise there would be no incentive. So the funds will be distributed in accordance with a league table, rating organisations in terms of the improved energy performance over the year in question.
   
Clearly, an organisation’s position in the league table cannot be accurately predicted as it depends on what others do. But certain steps can be taken.
   
First, the goal should be to achieve improved efficiency year on year. That increases the likelihood of being in the top half of the table and recouping at least your outlay if not more. Second, consider early action measures that will move the organisation up the table in the first few years. There are two such actions which are set down in the Scheme: installation of aM&T systems; and membership of a scheme that delivered quantified savings, such as the Carbon Trust Standard “or equivalent”. The BSI Kitemark® scheme for Energy Reduction Verification, based on the new energy management standard ISO EN 16001, has also recently been approved as has the CEMARS offering – so there are several options.
   
Although the CRC Energy Efficiency Scheme is a carbon trading arrangement, the emphasis – as the name suggests – is on reducing energy consumption. This is because the simplest way to reduce emissions is to manage energy efficiently. It also has the benefit of reducing costs to the organisation by promoting resource efficiency, which after all should be a core part of anyone’s management strategy.
   
Most organisations will also have some experience of energy efficiency programmes and will be able to get to grips with that aspect of the CRC EES. However, carbon trading is likely to be a new departure for many. Although all participants will have experience in forecasting future operating budgets, buying and selling allowances in a commodity market – which is the essence of Phase 2 of the scheme – may be quite new.

TRIAL EXERCISE
Organisations would do well therefore to carry out some trialling exercises during the first, fixed-price phase of the scheme which runs from now till 2013. What for example would be the impact of future growth, organisational restructuring or planned capital investment on energy demand? These should be examined for their implications in terms of additional purchasing of allowances and for opportunities to reduce the organisation’s carbon footprint (and thereby limit exposure to changing carbon prices).
   
The CRC EES targets those organisations whose energy bills are a relatively small part of overall operating costs. The current carbon price on the open market is running at about the level of the CRC EES fixed price – i.e. e15 or about £12 per tonne.
   
The principle behind carbon trading is that it encourages carbon saving (or abatement) and lowers overall cost. If the carbon price is £12 a tonne, then if an organisation can make energy saving investments for less than this price, they will do so. If they cannot, they will buy allowances.
   
In Phase 2 of the Scheme, the total number of allowances in the Scheme will be fixed. The availability of top-up allowances – and therefore their price – will depend on how successful participants are in reducing their consumption. If the price rises, it will make investments more cost-effective and release more surplus allowances into the market for others to buy in order to comply with their obligations.
   
There is much discussion in the media and amongst experts about the price needed to drive a step-change in our energy culture. Many observers mention a figure of between £40-50 per tonne of CO2. We may not see that for some time but it needs to be taken into consideration for long term planning. If national and international climate change targets are to be achieved, some extra drivers will have to be found.
   
For those in the CRC EES, the carbon price will not make a major impact on investment choices, at least not immediately. Figure 2 (page 75) gives an indication as to the relative costs to a typical organisation of carbon, energy and overall office costs. There are, though, many cost-effective energy efficiency measures that can be introduced today, even in the face of difficult economic and funding conditions: lighting controls, variable speed drives (VSDs), high efficiency motors and aM&T are just a few examples.
   
More capital intensive measures such as building energy management systems (BEMS) may be more marginal on simple ROI calculations. But feed in the carbon price, even at today’s level of £12 per tonne, and the figures may look significantly different. It makes a useful exercise to calculate at just what carbon price specific projects will become economic. Keeping these on a “watching brief” will allow energy and facilities managers to decide the optimum moment to propose them to senior management.

TRADE OR TAX?
The UK has decided to use carbon trading, rather than a carbon tax, to drive forward its climate change goals. A flat rate carbon tax would penalise all consumption rather than rewarding appropriate behaviour. At the two ends of the spectrum, both energy-intensive heavy industry and low-income households would be disproportionately affected.
   
A trading scheme like the CRC EES can be tailored to specific sectors and can be adjusted much more easily than an across-the-board tax. The CRC EES employs both a carrot and a stick – but the opportunities are definitely there for those that have a mind to grasp them!