Climate change Agreements: Are you going to fail to meet targets?
As many companies appear to be failing to meet their Climate Change Agreements, Donna Clarke of Greenergy Carbon Partners looks at the penalties that companies will face and how to avoid them.Some 6,000 companies with more than 10,000 sites have taken on energy saving targets under Climate Change Agreements (CCAs) (see edie news story) in exchange for an 80% discount on the Climate Change Levy (CCL) - a levy which could have added 12% to a company's energy costs (see edie feature).
To date, 45 sectoral trade associations have now negotiated CCAs with the Government and the potential value of these Agreements is quite considerable. For the iron and steel industry two years' of CCL exemption has been estimated as being worth £192 million, for the chemicals sector £218 million and the food and drink and paper sector about £70 million.
However, direct evidence of the level of missed CCAs will not become available until early February 2003 when the Government publishes sector performance reports. For businesses that want to ensure that they keep their valuable exemption, there are two areas to focus on - the first data management and the second, risk management.
Data management is the most critical area for businesses in a CCA because the data management required to maintain a CCL rebate goes beyond simple monitoring energy spend and consumption on a site-by-site basis. And whilst some energy management reporting systems can fulfil much of the data requirements associated with the CCA obligations, many companies will need to review their energy monitoring and reporting systems for robustness and check for any gaps and possible errors that may arise. Key to this will be the ability to convert raw energy data to product mix output algorithms.
Pre-auditing of data management systems is therefore good practice. This will give companies the assurance they will comply with their CCA requirements and, if they are selected for independent verification checks by the Department for Environment, Food and Rural Affairs (DEFRA), that the process proceeds as smoothly as possible, and with minimum fuss.
Risk management and trading
Companies and their sector trade associations have until 15 February 2003 to ensure compliance with their milestone target. If a company is at risk of losing its CCL exemption because of underperformance against its target, consideration should be given to purchasing UK Emissions Trading Scheme allowances.
Buying allowances can be a cost-effective way to comply with a target and hedge against the risk of losing the valuable exemption. Furthermore, in most cases companies will only need a small amount of allowances to cover against a shortfall. Even with current allowance prices at around £7.50 per tonne of carbon dioxide equivalent (t/CO2e), for many large energy users, buying allowances is a much cheaper option than losing the exemption. Understanding what the marginal cost is of buying allowances or losing the exemption should therefore be part of a CCA risk analysis assessment and integrated in a CCA risk management strategy.
The CCAs present new challenges to energy and environmental managers because they require an understanding of data management, risk management and verification. As companies come closer to their first milestone target, energy and compliance with a CCA target will become an increasing focus of attention not just by them, but also by finance and risk managers keen to ensure that a valuable CCL exemption is not lost due to lack of a CCL risk management strategy.
Donna Clarke is Business Development and Strategy Director at Greenergy Carbon Partners, a UK-based company specialising in carbon strategies, systems development, trading and markets. E-mail: firstname.lastname@example.org.