Implementation of the Carbon Reduction Commitment in Hcc

HERTFORDSHIRE COUNTY COUNCIL

ENVIRONMENT AND PLANNING CABINET PANEL

TUESDAY 10 NOVEMBER 2009 AT 2.00 P.M.

IMPLEMENTATION OF THE CARBON REDUCTION COMMITMENT IN HCC

Report of the Director of Environment and Commercial Services

Author: John Rumble, Sustainability Team Leader, Forward Planning

Tel: 01992 556296

Executive Member:Derrick Ashley, Environment Planning and Waste

1. Purpose

1.1. To provide the Panel with an update on progress to date with preparations for the introduction of the Carbon Reduction

Commitment in April 2010. This paper sets out the budget implications

of the Commitment for the authority and the proposals for the formal

management arrangements for the scheme.

1. Summary

2.1. Hertfordshire County Council is legally required to participate in the new national emissions trading scheme, the Carbon Reduction Commitment, from April 2010 along with up to 5,000 other public and private organisations across the UK. This scheme requires the County Council to purchase emissions allowances for all of its CO2 emissions from property, including schools and streetlighting. This amounts to approximately 130 – 150,000 tonnes of CO2 and, at an allowance cost of £12 per tonne, will mean a budget requirement of up to £1.8 million per annum. This money should be returned to the organisation as part of a recycling repayment to participating organisations, subject to an adjustment based upon a bonus / penalty payment system determined by performance in reducing CO2 emissions during the year.

2.2. Progress on meeting the requirements for participation in the CRC is well underway and the budget implications will be considered as part of the county council’s integrated planning process, although the first payment for allowances will now not need to be made until April 2011. Discussion on the formal management arrangements for CRC is underway with the required responsibilities within the scheme needing to be notified to the regulator, the Environment Agency, in April 2010.

1. Recommendations

3.1. That the Panel notes that the budget issues associated with the organisation’s participation in the CRC will be considered as part of the county council’s integrated planning process.

3.2. That the Panel notes that the Director of Environment and Commercial Services will be responsible for CRC and that delegation will be reviewed to ensure that he is able to operate the scheme across the authority.

1. Background

4.1. The CRC is a new mandatory emission trading scheme that aims to improve energy efficiency and reduce the amount of carbon dioxide (CO2) emitted in the UK. It will affect approximately 5000 large private and public sector organisations across the UK including HCC.

4.2. The CRC will be run and regulated by the Environment Agency and will begin in April 2010; it is scheduled to run indefinitely. There will be an introductory phase lasting three years when carbon allowances will be sold at a fixed price, likely to be £12 per tonne CO2. The County Council will have to purchase enough carbon allowances to cover all emissions that we are liable for under the scope of operations defined within the CRC legislation, this includes:-

• All property for which HCC has responsibility to pay energy bills.
• All Local Authority (LA) controlled schools and non LA controlled schools including voluntary aided and funded schools, foundation schools and academies
• Street lighting

4.3. Emissions from the above sources will be called our ‘CRC emissions’ and could amount to circa 130,000 – 150,000 tonnes CO2, depending on the final scope of the scheme, at a cost of around £1.5 - £1.8 million. Schools are likely to account for 70-80% of our CRC emissions and allowance costs.

4.4. The revenue generated by the Environment Agency within the CRC scheme from the sale of carbon allowances will be ‘recycled’ to participants six months (October) after the annual sale in April. Each organisation will receive a larger or smaller recycling payment than the cost of allowances purchased in that year according to their position in the performance league table. This performance is judged on the organisations emission reduction over the previous year and is relative to the performance of other CRC participants. This means that there will be competition amongst the estimated 5000 plus participants from both public and private sector organisations to obtain a position in the top half of the performance table in order to maximise their recycling payments. Similarly those in the bottom half of the table will receive some element of penalty, i.e. not getting back their total cost of allowances.

4.5. The timeline for the introduction of the CRC and the actions required during the initial three-year first phase is shown in Appendix I.

1. Progress to date

5.1. Work on preparing HCC for the implementation of CRC is progressing well. A CRC project team has been established with cross-departmental representation. Distinct work streams have been identified and the work items currently being progressed under each work stream are summarised in Appendix II. Updates and progress are fed into and monitored by the Climate Change Board. To support the implementation and administration of the CRC, we are recruiting a Carbon Reduction Project Officer and it is expected that a candidate will be in place by the end of the 2009.

5.2. In addition, to help better prepare for CRC, we are participating in the second phase of the Local Government Information Unit’s (LGiU) Carbon Trading Public Sector Programme. This programme began in April 2009 and will run until March 2010. It offers HCC the chance to get some experience of emissions trading in a safe training environment and experience is being disseminated amongst the CRC project team.

5.3. A review of the legal requirements of the CRC has been commissioned from legal services to ensure that we are meeting all of the requirements of the CRC and this is expected to be completed in April 2010 in time for the registration period for the scheme.

1. CRC Budget Process update

6.1. Implementing and complying with the CRC will result in significant financial costs for HCC although it is anticipated that the majority of these costs will be recouped through the CRC’s payment recycling scheme. Recommendations for funding of CRC costs have been passed through both Resources and Climate Change Boards and will be considered as part of the county council’s integrated planning process.

6.2. It should be noted that there are considerable uncertainties in the level of credits that the county council will receive as this will depend upon the relative performance of all of the participating bodies. If the county council performs better than the average, we should receive back more in credits than we have to pay out in purchasing allowances. However, if we perform worse than the average, we will receive less back than we pay out. It is the aim that these will as a minimum balance, but this cannot be guaranteed.

6.3. The risks associated with the organisations participation in the CRC are being incorporated into the appropriate risk registers in Corporate Services and Environment & Commercial Services. The main risks associated with CRC are;

• Financial Risks:

• Scope of emissions HCC is liable for. The final CRC scheme rules are yet to be finalised (this is expected to be complete in autumn 2009) and there is the risk that the scope of emissions will widen at greater financial cost. For example HCC may be responsible for all Further Education colleges in Hertfordshire, which could double the amount and cost of CRC allowances[1].
• Uncertainty of recycling payment. HCC may not get back the cost of allowances paid out, and it will be very difficult to predict the recycling payment HCC will receive as it will depend on the authority’s position in the overall scheme league table.
• Risk of incurring penalties for non-compliance. There are various provisions within the CRC scheme for penalties, both financial and criminal, for organisations that fail to meet deadlines or do not comply with reporting and operational requirements of the scheme.

• Reputational risk:

• CRC participant’s performance will be published in a publicly available league table every year.

1. Key Considerations for HCC

7.1. As HCC meets the qualification criteria for the first phase of the CRC, it has a legal obligation to register as a participant. The registration period runs from April 2010 to September 2010. On registering HCC has to provide details of three nominated contacts:-

• One Director
• Two contacts at operational level who the Scheme Administrators (the Environment Agency) can deal with on behalf of HCC

7.2. The nominated Director will take on responsibility for the CRC ‘Evidence Pack’. The evidence pack is an up to date record of all documents related to energy use and will need to contain the detailed data on which the overall annual emissions figures reported by HCC are based. The Scheme Administrators will carry out risk-based audits on average once every five years. This will focus on the evidence pack and will check the accuracy of reported annual emissions. There are financial and criminal penalties for incorrect reporting and failure to keep accurate records, these start at one-off fines of £5,000 and can be a severe as up to three years imprisonment for the worst breaches of the CRC schemes requirements. As the evidence pack will need to be signed by the Director, the nominated Director will be liable for any criminal penalties on behalf of the organisation.

7.3. The nominated director for CRC will be the Director of Environment & Commercial Services (John Wood). Delegated responsibilities will need to be reviewed to ensure that the scheme can run effectively within the authority.

7.4. It is anticipated that the two operational contacts will be the Sustainability Team Leader and the Carbon Reduction Project Officer, both from the Environment & Commercial Services Department.

7.5. The means by which the authority manages the bonus / penalty payments arising from the scheme has yet to be decided. This will be a particular issue for the organisation in how it acts to incentivise energy investment by the organisation and schools in particular. Current guidance from DCSF asks local authorities to use potential bonus penalty payments to incentivise school performance. Should the authority decide to use this approach it would require the creation of internal performance league tables and the means to manage and administer them.

1. Financial implications

8.1The financial issues arising from the implementation of the CRC within the County Council have been fed into the 2010/11 budget process. This could amount to circa £1.8 million for carbon allowance purchase annually from April 2011. It is anticipated that this funding will be recouped through the CRC’s payment recycling scheme.

Background information used in compiling this report

DECC, Government response and policy decisions to the consultation on the draft order to implement the carbon reduction commitment, October 2007.

London Energy Project, ‘Preparing for the Carbon Reduction Commitment: A practical guide for local authorities and the wider public sector’, 2009

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Appendix I: CRC Introductory Phase Timeline

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Appendix II: CRC Work Streams and Current Work Items

• Scoping how HCC will meet CRC data requirements and systems requirements
• Promoting installation of automatic meter readers (AMRs) in approximately 200 schools to support CRC data collection.
• Promoting recruitment of two dedicated school energy advisors to support AMR monitoring in schools and provide energy efficiency advice
• Papers were presented to Climate Change Board and Resources Board in July outlining recommendations on installation of AMRs and recruitment of schools energy advisors, which have been agreed. Herts Property is now working with CSF Finance to finalise how the AMR installations and school energy advisor posts will be funded.

• Communication to HCC Facility Managers on CRC and need to reduce energy (via The Source publication)

• CRC and implications for HCC (Apr 2009)
• Budget Implications of CRC (Jun 2009)*
• Approach to Support CRC Data Collection (July 2009)*
• CRC Costs and Funding Options (Sept 2009)*

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[1] This is currently being queried with the Scheme Administrators, the Environment Agency