The CRC: is there a penalty for early action?
September 2009
Agenda
Introduction
The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions
Introduction
CRC
• 7 months to go! – April 2010 start date
• Registration packs from EA expected this month
• Final consultation closed – remaining policy decisions
expected over Autumn
Key issues for many participants:
• How to comply with the CRC
• Strategies to minimise costs / maximise return:
• Should you cut emissions now?
• What is the benefit of ‘early action’?
• How do you get support for capex investment?
Focus
for
today
Is there a penalty for cutting
emissions now? – a simple analysis
Cost of carbon in the energy we buy:
0.53 tCO2 per MWh of electricity
1 tCO2 emitted for every 1.89 MWh of electricity
Assuming 8p/kWh then 1.89 MWh of electricity costs ~ £150
1tCO2 = £150 electricity cost
CRC implications:
CRC drives competitive behaviour +
mgmt attention
Financial gain/loss in CRC is much
lower than the cost of energy
Cutting emissions now (and having a
plan to continue cutting) makes
financial sense
Note also that a greater starting
footprint increases your CRC exposure
– all future payments are pegged to
that point
Agenda
Introduction
The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions
The Energy Gap
…. and its effect on electricity prices
David Middleton
11th September 2009
What is the Energy Gap?
“Around 75% of our electricity is
currently generated from gas and coal
today; renewables will expand to
around 30% of our generation by 2020”
Department of Energy and Climate Change,
Low Carbon Transition Plan, July, 2009
“…22.5GW is expected to have closed
by 2020 and between 30 and 35GW of
new capacity is forecast to be needed
by 2030. In the period to 2020,
22.5GW of 76GW of 2007 generation
capacity will shut by 2020”
Greenpeace,
Closing the Energy Gap,
September 2008
Electricity prices; volatile and uncertain
Current prices are less
than half what they
were 12 months ago,
but what will future
prices be?
Some organisations
are creating an energy
efficiency budget with
a proportion of any
price reduction they
get to reduce future
energy costs
Agenda
Introduction
The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions
League table calculation
All organisations are ranked in a league table
Position in the league table decides the amount of ‘recycled’ money
you receive
The maximum bonus or penalty increases year on year
Year 1
Year 2
Year 3
+/- 10%*
+/- 20%
+/- 30%
Absolute Reduction
0%
60%
60%
Relative Reduction
0%
20%
20%
AMR
50%
10%
10%
Carbon Trust Standard
50%
10%
10%
Recycling bonus / penalty
League table calculation:
*Recycling payment in year 1 is double to minimise cash flow impact
Early action metrics are the only
ranking criteria in year 1 of the CRC
Taking early action to reduce emissions before the CRC leads to
financial benefit
The Carbon Trust Standard and AMR are the 2 recognised early
action metrics
To gain benefit from the Carbon Trust Standard organisations
must have valid certificates on the final day of each CRC year
(31st March 2011, 2012, 2013)
Points are allocated for the proportion of CRC emissions
covered by the Carbon Trust Standard
Illustrative financial impact of taking
early action – first CRC year
CRC Footprint
10,000 tCO2
(Equivalent Energy bill)
~£1.5m
Annual allowance cost (@ £12/tCO2)
£120k
Double purchase in 2011
£240k
Potential bonus / penalty (10%) on recycle
+/- £24k
Maximum value at stake 2011 from early action
Bonus / penalty based 50% on AMR, 50% on CTS
Financial impact scales with footprint
Reputational impact as important as financial impact?
£48k
The Carbon Trust Standard:
certification for good practice in
carbon management and reduction
Voluntary certification
Measure
Manage
Unique focus on measurement,
management and reduction
Open to all organisations
Developed by the Carbon
Trust, and based on
international standards
Certify
Reduce
www.carbontruststandard.com
Further Information
www.carbontruststandard.com
[email protected]
0800 019 1443
Agenda
Introduction
The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions
ESTABLISHING A CARBON CAPEX BUDGET
RODOLPHE D’ARJUZON
11 SEPTEMBER 2009
CFOs need to be directly involved for a wide range of reasons
Targets
CFO remit
Risks and
Opportunities
Cash Flow
Impact of CRC
Rising Carbon &
Energy Prices
Carbon Reporting
Frameworks
Fund Innovation
For Revenue
Growth
CEO
commitments
Reasons why it is not straightforward to fund carbon initiatives
Resistance to SI
in Energy
Efficiency
Low Funds
Availability
Poor View
Of Offsets
17
Potential framework to create a carbon reduction capex budget
Key Step
18
Additionally, this framework is easily tailored to suit the timing of the
cashflows required under the CRC
•
To align with the cash requirements for the CRC
– Set the carbon price one year ahead of the first allowances purchase to
effectively levy the cash from the business units
– Use the cash to fund the first allowances purchase
– The capex fund for investments in energy efficiency projects is created
when the first CRC refund payment comes in
•
Benefits of this framework
– Adaptable to entities of any size: single or multi-business unit
businesses, small businesses, Local Authorities
– The agreed company wide carbon price makes it transparent and
flexible
– Central control over funding of projects
19
Agenda
Introduction
The Energy Gap – David Middleton - PowerPerfector
Early Action – Harry Morrison – Carbon Trust Standard
Carbon Capex Budget – Rodolphe d’Arjuzon – Verdantix
Conclusion and questions