Improving climate through carbon trading

Climate change is a priority for all of us and for every sector. The new Climate Change Act, which received Royal Assent in November 2008, sets a legally-binding target of an 80 per cent reduction in carbon emissions by 2050. That is a very big ask and all sectors of the community – individuals, business and individuals – will all have to play their part in achieving those cuts.
    
The government has already set out some programmes that will make inroads on that target. Uprating of the performance standards in the Building Regulations was followed by the introduction of Energy Performance Certificates and, for the public sector at least, Display Energy Certificates. Smart meters for all but the smallest users have also been promised within the next five years.
    
Now the discussion has moved on to the next mandatory programme for saving energy and reducing emissions. This is the Carbon Reduction Commitment (CRC) which will involve large organisations with a substantial energy bill in carbon trading for the first time. Trading is already being used in the EU Emissions Trading Scheme (ETS) and the government believes that it could be employed to drive down emissions from large but non energy-intensive users in the UK.

Carbon trading
In economic theory, so-called ‘cap and trade’ schemes produce the required savings for the lowest overall cost. That is why they are so attractive as policy instruments. The CRC scheme in addition returns all the revenue to participants (although not exactly on a pound-for-pound basis) so it does not take a great deal of funds out of the economy.
    
Cap and trade schemes impose a cap or ceiling on the amount of permissible emissions. Allowances are sold to organisations to cover their emissions. But the way the scheme works is to progressively reduce the cap or ceiling, so that participants have to reduce their emissions too. If they cannot, they have to buy extra allowances on the free market. If they can cut emissions relatively cheaply they will have allowances to sell to others though. Participants will have to make a decision on whether to invest in carbon reduction measures or buy more allowances, whichever is cheaper. Within the scheme overall, though, emissions are progressively reduced at lowest cost.

Mandatory scheme?
The CRC is a mandatory scheme and will include all organisations that have an annual electricity consumption of 6,000 megawatt hours or more, as measured by half-hourly metering. That represents an annual bill of about £500,000. It should be noted that this is any half-hourly metering, including voluntarily installed as well as mandatory systems. This will therefore include a large number of health service organisations.
    
All UK billing addresses for sites with half hourly metering will receive a letter from the Environment Agency early in 2009, requiring information on usage during 2008 and a list of all half-hourly meters. The consumption during 2008 determines inclusion in the scheme.
    
The CRC then begins in April 2010. Participants will have to purchase (and surrender to the government) the correct number of allowances to cover their emissions. For the first year only, these can be purchased retrospectively in April 2011. For the first three years, they will be sold annually at a fixed price of £12/tCO2. From 2013, by which time those taking part are expected to have become accustomed to carbon trading, they will be auctioned.

Revenue-neutral
The CRC is designed to be revenue neutral – all the monies raised from selling allowances will be recycled to participants. But the aim of the scheme is to encourage improvements in energy performance, so those that do better will be rewarded. Everyone will be placed in a single league table based on reductions in emissions per square metre of usable space (there will be a method of adjusting for increases or decreases in business output, which could affect total emissions). The position in the table will determine the proportion of the funds returned to participants. Those performing better than most can expect to receive more money back than they put in. Poor performers will be net losers.
    
While the scheme certainly has financial implications, trusts should not underestimate the risk to reputation from a low league table position, nor how avidly management boards are likely to study their position relative to other health establishments – especially those near by.
    
One concern for policymakers was that those to be included in the scheme might delay making any efficiency improvements till after it starts – that makes first year improvement look better and generates higher refunds. So they have built in an ‘early action’ metric to modify the position in the league table. Two items are included in this metric: implementation of automatic Monitoring & Targeting (aM&T) systems; and membership of the Carbon Trust Standard (formerly the Energy Efficiency Accreditation Scheme). Ownership of the first or membership of the second will improve an organisation place in the table.
    
Consumption over the first, baseline year will be used to measure subsequent improvement over time and this will be the major determinant of the position of an organisation in the league table. However, the first year 2010-11 will also be the benchmarking year, so no improvement will be recorded in that first period. Therefore, the early action metric will be the only means of gaining a higher position in the table in that first year.
    
That fact should make all potential participants seriously consider installing aM&T now, and joining the Carbon Trust Standard, since the benefits will be amplified for that first year.

aM&T systems
aM&T systems also have many other benefits. They entitle building designers to a 2.5 per cent allowance against the Target Emissions Rating under the Building Regulations for new-build and refurbishment projects. In the public sector, they make the assessment for Display Energy Certificates (DECs) much simpler. Overall, they simplify the basic energy management technique of Monitoring & Targeting by eliminating many of the repetitive, time-consuming aspects and ESTA’s research suggests that these systems can generate up to 20 per cent energy savings. 2009 looks like being the year to consider investment very seriously as the health sector gears up for a major new project to combat climate change.

The Energy Services and Technology Association (ESTA) represents over 100 major providers of energy management equipment and services across the UK. 

7th National aM&T Conference
ESTA is organising a national conference on the benefits of automatic Monitoring & Targeting at the Ricoh Arena E.ON Lounge, Coventry, on Wednesday 25 February 2009. The conference is free to attend. Visit the ESTA website to register: www.esta.org.uk