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An opinion article by Andy Lemon, Head of Energy Markets at Dalkia

The levies and charges which have been put in place by the UK government since the 1997 Kyoto Protocol have led many companies to seek advice and to establish processes in order to control the way their greenhouse gas (GHG) emissions are managed. Using a total energy solutions provider can not only save money but can also create a source of tradable commodity in the form of certified emissions. This is a complicated legislative area and one in which an independent outsourced company can offer support and guidance to ensure the efficient management of these regulations.

The Climate Change Levy (CCL) is a downstream energy tax that is applied to business and public sector users of gas, electricity, LPG and coal. Participants of Climate Change Agreements (CCA) predominantly set targets for energy efficiency, which covers both direct emissions from combustion, and also indirect emissions that are energy imported. If organisations within the CCA meet their two-year targets they can gain an 80% relief from the CCL, which reflects this achievement for a further two years.

The EU ETS (European Union Emissions Trading Scheme) is a European directive aimed at reducing greenhouse gas emissions, predominantly CO₂. The EU ETS is borne out of the Kyoto Protocol, which is a legally binding international agreement to restrict GHG emissions over the course of five years from 2008 to 2012, against the 1990 baseline for global emissions with the aim of reducing emissions to 5.2% below these levels. The EU ETS commenced on 1st January 2005 for a three-year phase, with subsequent five-year phases thereafter.

The rationale behind the scheme is to reduce the CO₂ released into the atmosphere during the combustion of fossil fuels, meaning that the use of them needs to be significantly cut. The scheme certifies each qualifying installation (which for the majority of participants are combustion activities with an aggregate thermal input exceeding 20 MW and excepting hazardous or municipal waste installations) by allocating it a number of emissions.

If this allocation is exceeded then the installation operator must either buy additional allowances or pay a penalty charge for non-compliance. Alternatively, if carefully managed then the installation will find itself in the position of having surplus allowances, which can be traded on the EU ETS. Alternatively surplus allowances can be banked for future use, although banked allowances cannot be transferred between phases of the scheme.

Upon the certification and allocation of allowances, many installations may find themselves with fewer emissions allowances than their current 'business as usual' actual emitted carbon. Of course, the main aim of the scheme is to contribute to the Kyoto target by reducing CO₂ emissions. For many operators, the alarmingly low level of allowances for their installations, and ensuring the efficiency of them, can be managed most effectively by an outsourced energy partner or energy services company (ESCo), particularly one with the added capability of being able to perform emissions trading for its customers.

Of course the implications of the scheme are wide and varied, requiring a dedicated management arm which is often best operated by an outsourced company. An energy partner company will have the support of all the research on the effects of the scheme on energy users, as well as the ability to liase with the relevant government bodies in order to find technical and commercial solutions to help its customers address these effects. In short the many aspects of carbon management require a joined-up approach which is not only based on firm understanding and experience, but also integration with the client company.

By using an emissions trading management mechanism, the outsourced ESCo can undertake the main bulk of monitoring and reporting the installation's emissions activities. An independent verifier from the ESCo will be able to validate the existing and future data for the sites, where it is responsible for managing the ETS programme. In these cases it is best to use an energy services company which has structured trading arrangements with all major trading houses, banks and participants within the power generations sector - in order to undertake any sort of transaction and sell surplus credits.

 

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