2. Carbon Reduction Commitment AEA is the Government adviser contracted to develop the CRC scheme Stephen Boyle, Principal Consultant, Climate Change and Policy 1 st June 2009 A world leading energy and climate change consultancy

3. Global business supporting public and private sectors -Energy and climate change -Air and water quality -Risk management and due diligence -Resource efficiency -Sustainable transport -Innovation and knowledge transfer -Sustainability -Information technology and environmental management About AEA AEA is supporting DECC as it develops the regulations for CRC

4. What is the CRC? Mandatory auction-based emissions trading Enabling powers Climate Change Bill Public and private sector Covers all non-transport energy emissions Applies at highest UK parent organisation Requires participants to monitor energy use and trade emissions allowances Starts in April 2010 but preparation starts now

5. But do you qualify for CCA exemption? No Yes You are covered You are not covered No Total HHM electricity use > 6000MWh/year? You are not covered Yes Qualification Process - Mandatory half hourly metered (HHM) electricity? Declare exemption By 31 st July 2011 Declare qualification status April – Sept 2010

6. What’s covered CCA emissions EUETS emissions Non-core sources Core sources Based on emissions in the period April 2010 to March 2011 Reported by 31 st July 2011 Based on emissions in the period April 2010 to March 2011 Reported by 31 st July 2011 All energy consumed for non-transport purposes Electricity Gas Oil, diesel etc

7. Financial year compliance cycle Purchase Allowances for the year Evidence pack and source list Report emissions by end July after the year end and surrender allowances Audit not verification Rules for renewable generation, export of power from own generation, heat from CHP Annual reporting

8. Capped phase (auctions) Sales and recycling April 2010 April 2011 April 2012 April 2013 Scheme starts First sale (double) First recycle (double) Second sale (single) Second recycle (single) First auction (single) Introductory phase (£12/t sales)

9. Stirling’s value at risk Stirling’s 2007/08 Energy usage kWhkgCO2 -Electricity 19,142,427 10,279,484 -Gas 31,577,573 5,841,851 -Oil 1,616,065 430,070 -Renewable 0 0 -Others 0 0 -Total 52,336,065 16,551.405 Stirling’s CRC Auctioning Revenue for the fixed price phase -10/11 – 16,552 number of allowances at £12/CO2 - £198,624 – ±10% - VAR £39,725 -11/12 – 16,552 number of allowances at £12/CO2 - £198,624 – ±10% - VAR £39,725 -12/13 – 16,552 number of allowances at £12/CO2 - £198,624 – ±20% - VAR £79,450 Stirling’s CRC Auctioning Revenue for the following 3 years (at 2.6% GDP*) -13/14 – 16,552 number of allowances at £12.30/CO2 - £203,590 – ±30% - VAR £121,154 -14/15 – 16,552 number of allowances at £12.60/CO2 - £208,555 – ±40% - VAR £166,844 -15/16 – 16,552 number of allowances at £13.00/CO2 - £215,176 – ±50% - VAR £215,176 Total Value at Risk for Stirling over 3 year fixed price period £158,900 * HM Treasury Mid-Term Forecast Report Feb 2009

10. Early action, prior to April 2011 Percentage emissions reduction - absolute Percentage reduction in emissions/turnover - growth Performance is assessed against a 5 year rolling average The league table Early action Growth metric Absolute emissions Early action Growth metric Absolute emissions 0% 10% 20% 30% 40% 50% 60% Year (starting April) Max bonus/penalty (Double recycle) 20102011201220142013

11. Recycle payments Base payment Each participant’s share of emissions in 2010/11 multiplied by total recycle pot each year League table bonus/penalty 2 Annual assessment against metrics – your score Ranking of all participants – the league table Bonus/penalty Adjustment factor 3 Ensure sum of recycles equals total pot 1

12. In summary - what to do and when Registration Preliminary Report Annual compliance 01/0807/0801/0907/0901/1007/1001/1107/1101/1207/12 Emission period Reporting period Emission period Reporting period Key HH Electricity All energy EUETS, CCA Annual emissions, turnover, early action Annual emissions, turnover

13. Key features Compliance preparation -Registration -2010/11 footprint data (2010/11 will be base element for recycle payments) -Annual compliance League table -Metrics and emissions performance -Carbon Trust standard and automatic meter reading -Recycle payments and reputational impacts Landlord / tenant responsibilities Trading strategy and cash flow implications

14. You should produce a detailed compliance action plan -Milestones -Data requirements -Responsibilities Assess your readiness for scheme compliance -Building on carbon targets -Actions to overcome shortfalls -Evidence pack requirements -Confirm additional sources position AEA could support your formal submissions process Compliance preparation

15. Review significance -Emissions within landlord’s responsibility -Significance -Risk of pass-through / lease strategy Landlords and tenants Responsibility for emissions will lie with the counter party to the energy supply contract

16. A successful trading strategy Understand your abatement options Forecast your business as usual emissions Understand how the sale/auction will work Recognise the risks -Others will be bidding in the auction so you may not get what you want -The alternative to the sale is the secondary market/safety valve

17. Your approach to CRC The scheme has many opportunities to win or lose: -League table – good emissions performance -League table – early action metrics -Landlord and tenant arrangements -Non-core sources -Successful trading strategy A proactive approach to the CRC will reap greater rewards than a simple compliance outlook

18. Work out your organisation structure Know your emissions exposure Understand your compliance obligations Make sure your systems are in place to gather and manage data and forecast emissions Understand your abatement opportunities Take a proactive approach to the opportunities the scheme presents Preparing for the CRC - Summary

19. Carbon Reduction Commitment Stephen Boyle, Principal Consultant, Climate Change and Policy 0870 190 6804, Stephen.Boyle@aeat.co.uk 1 st June 2009