INFORMATION SHEET 2

ELIGIBILITY RULES

Introduction

Eligibility for a CCLA depends on two main considerations:

• Whether the site has processes that could be covered by the Integrated Pollution Prevention and Control (IPPC) Directive. Only such sites are permitted to join CCLAs and claim the 80% discount.

• What proportion of the energy used at an eligible site is used directly in an IPPC process or a process that is "directly associated" to such a process. Energy used in non-IPPC activities might not be eligible for the Levy discount.

It is very important to note that the size thresholds used to define IPPC processes are NOT considered in relation to CCLA eligibility. For example, in the baking sector a plant must process in excess of 300 tonnes of vegetable material per day to require an IPPC licence. A site processing, say, 10 tonnes per day will clearly not require an IPPC licence. However, this small site WILL be eligible for a Climate Change Levy discount. This is a critical point for the craft baking sector and it makes energy used in any baking process eligible for the Levy discount – this includes bake-off in bakery shops.

Eligible Activities

The IPPC Directive is a new pan-European regulatory regime for the more polluting industrial processes. To a large extent it mirrors the UK’s own legislation in this area, Integrated Pollution Control (IPC) which has been in place since 1990. The new IPPC Directive does, however, cover an entirely new sector – food and drink processes. This is what makes bakeries eligible for the Levy discount. The Directive will shortly be introduced into UK legislation through the Pollution Prevention and Control (PPC) Act 1999. Regulations for England and Wales are contained in the PPC Regulations 2000. Similar regulations are to be introduced in Scotland and N. Ireland.

The PPC Regulations are complex and still in draft form. Ultimately a PPC Authorisation itself will become the basis for determining eligibility for a Climate Change Levy discount. However, large bakeries are not due to be authorised under PPC until around 2003 – hence DEFRA need to make judgements about the definition of eligibility before practical interpretations of the PPC regulations are fully developed by the Environment Agency.

In simple terms, sites that are processing vegetable, animal or dairy materials are likely to be eligible. The term "processing" is critical – sites that simply store, package or sell such products will not be eligible.

The latest version of the draft PPC Regulations lists in detail the processes that are likely to be eligible for the discount. The list includes:

• Treating and processing animal and vegetable materials intended for the production of food products

• Treating and processing of milk

The PPC Regulations do not cover operations owned by food and drink companies that do not involve processing of vegetable, meat or dairy materials. This means that the Climate Change Levy discount will not be available for energy use in the following areas:

• shops that have no food processing on the premises.

• offices

• stand alone cold stores (stand alone means on a site without an eligible manufacturing process)

• stand alone depots

• stand alone packaging plants

• non-IPPC related facilities at a site processing food. For example a food manufacturing facility could share a site with an unrelated non-IPPC engineering activity. Only the relevant part of such a site will be eligible.

• R&D facilities (but, pilot plants should be eligible)

Directly Associated Activities

An important aspect of eligibility under IPPC is the "directly associated activity". Directly associated activities are those that have a "technical connection" to an eligible activity and that can have an impact on environmental emissions from the activity. Such activities must be included in an IPPC licence.

The directly associated activity concept is very helpful in relation to Climate Change Levy discounts for craft bakeries as it allows certain key processes to be included within the scope of eligibility.

In particular, most packaging and cold/chill storage operations fall within this scope. This is critical because these operations are often users of energy in craft bakeries. This means that on-site cold/chill storage can be included fully within your eligible activity (unlike off-site stand-alone cold/chill storage, which, as described in the section above, is not eligible).

Packaging becomes eligible as a directly associated activity because it is a potential source of pollution or waste.

Other directly associated activities include "support services" to the main process such as ventilation and air extract systems, lighting of the process area etc.

The 90:10 Rule

Any site that uses energy in eligible processes is likely also to use energy in non-eligible processes that do not comply with the directly associated activity rules described above. The most common example is a bakery with an office attached. As described above, the energy use in the office is not eligible under the IPPC definitions. However, exclusion of all non-eligible energy can give rise to administrative complexity.

The 90:10 rule has been established to simplify operation of CCLAs in situations where the non-eligible energy use is small. If the energy used by the eligible processes is 90% or more of the total energy used in the facility then the Climate Change Levy discount will apply to the entire energy use of the facility.

If the eligible process accounts for less than 90% of the energy used in the facility then the Climate Change Levy discount will only apply to the energy used in the eligible process. In this situation you will need to establish what proportion of energy is used in the eligible process, preferably through use of sub-meters. If sub-meters are currently unavailable you can estimate the proportion of eligible energy use through calculations based on the expected energy consumption of each item of equipment. Sub-meters should be installed by the first milestone to provide a better estimate.

In most bakeries we would expect that the eligible energy would be in excess of 90%. However, this will not always be the case and DEFRA expect companies to provide a careful evaluation of the 90/10 rule. In many bakery shops, the eligible energy will be a small proportion of the total site energy. In these situations adequate sub-metering is essential to prove eligibility and to monitor efficiency improvements.

The 90/10 rule is applied on primary energy used (See Information Sheet 3).

Eligibility in Bakeries

Most bakeries in the craft baking industry have a large use of energy in the "core process" (including mixing, proving, baking) and significant use of energy in directly associated activities (lighting and ventilation of processing areas, cold/chill storage of raw materials and finished products etc.). In most cases a bakery can be expected to "pass" the 90/10 rule. The only exception to this would be where ineligible activities are unusually large (e.g. a large head office building on a bakery site).

Eligibility in Bakery Shops

Compliance with the 90/10 rule in retail bakery shops is less clear cut.

For shops with no bake-off, there is little or no "food processing activity" so the shop will NOT be eligible for a Levy discount.

For shops with bake-off it is likely that eligible energy (in both the core process and "directly associated activities") is a considerable proportion of the total energy use. You will need to make a careful estimate of the proportion of energy that you believe is eligible. Remember to include all processing operations in your estimates – e.g. sandwich making and soup cooking, if relevant). Also remember that you can apply the 90/10 rule to the eligible energy. If, for example, you estimate that 80% of the energy in the shop is eligible, you can add another 10% of that figure (i.e. 8% of the total energy in the shop) – this means that 88% of energy in this example is eligible for a Levy discount.

Figure 2.1 Eligible Energy Consumption