INFORMATION SHEET 3

MPMA TARGETS AND MILESTONES

Having committed to join the MPMA Climate Levy Discount scheme, you will be required to achieve an overall energy efficiency target by 2010 and achieve steady energy efficiency improvements measured against predefined 2-yearly milestones.

The target is expressed as a percentage improvement in performance from the energy consumption in the baseline year.

The target agreed between MPMA and DEFRA is a 9% reduction in specific carbon emissions compared to the base year. This is explained in more detail in the following paragraphs.

Baseline Year

In the MPMA CCLA the base line year is calendar year 1999. On your application form you will need to supply energy and production data for the baseline year. Any data you submit is subject to random audit, so you must be sure that you can provide auditable data to back up your figures.

If you have inadequate data for 1999 you can use a more recent 12 month period as your base year.

Delivered and Primary Energy

Use of energy can either be expressed in terms of delivered or primary energy. In the MPMA CCLA your progress is measured in terms of primary energy. The distinction between delivered and primary energy is now described.

Delivered energy is the actual amount of energy delivered to a site. It is usually the quantity of energy in, say, kWh shown on your energy invoices. Primary energy takes into account the energy used to generate and transmit energy to your site. For gas and oil, delivered energy and primary energy are treated as being equal under the Climate Change Levy. However, for electricity it is necessary to take into account the efficiency of converting fuels into electricity. This efficiency can vary from year to year depending on the mix of available power stations. For the year 2000, the assumed relationship for electricity under the Climate Change Levy will be:

Primary energy (kWh) for electricity = 2.6 * delivered electricity (kWh)

The energy target that is shown in your Underlying Agreement will be expressed in terms of primary energy. The Scheme Administrator will calculate your primary energy target based upon the data in Table 3.1, energy data in your application form and certain conversion factors that have been agreed with DEFRA.

Currency of Target

DEFRA allow Trade Associations to express targets in one of four "currencies":

• Absolute energy consumption

• Energy consumption relative to production output

• Absolute CO₂ emissions

• CO₂ emissions relative to production output

Energy units (e.g. kWh) are no doubt most familiar and may be appropriate in many circumstances. However, there can be significant advantages in selecting a CO₂ target, particularly if you have the opportunity to convert from "high carbon" fuels such as oil and coal to low carbon fuels such as gas or renewables. Note that CO₂ emissions from a facility include direct emissions from the site as well as indirect emissions from power stations for the electricity used. Standard methods and coefficients have been developed for calculating these emissions. See Information Sheet 12.

For a relative target, your target will be based on "specific energy consumption" (SEC), measured in energy (or CO₂) per unit of production. The advantage of a relative target is that you have the opportunity of increasing your production levels and still meeting your SEC target. It is likely that many companies will adopt a relative target. However, if you believe the level of your output will decline over the next 10 years an absolute target may be appropriate.

MPMA has chosen to use CO₂ emissions relative to production output as the currency for this CCLA.

Changing Currency

Whilst the MPMA currency has been agreed as described above, it is possible for individual sites to switch currency if this is beneficial. This is subject to the following rules:

• You will only be allowed one change between an energy and a carbon dioxide target. Hence if you start with an energy target you may change to a carbon dioxide target but not back again, and vice-versa changing from a carbon dioxide to an energy target.

• If you start with an absolute target you will only be allowed TWO changes between absolute and relative targets.

• If you start with a relative target you will be allowed to change to an absolute target only ONCE. You will not be allowed to change back to a relative target.

• If you wish to change your currency once the agreement is signed you will need to contact the Scheme administrator.

Milestones and Certification Periods

The CCLA runs from April 2001 until March 2013. This period is divided into six 2-year "certification periods". At the start of the Agreement you will be certified for an 80% Levy discount until March 2003.

Your Agreement will include an overall target and 4 milestone targets that represent the required rate of progress at 2-yearly intervals. The milestone targets will be calculated by the Scheme Administrator based on a mechanism agreed between DEFRA and theMPMA. The milestones agreed are as follows:

If you meet the first milestone target you will be re-certified for the second certification period - a further 2 years, to March 2005.

The final certification period is from April 2011 to March 2013. You will be certified for this final period if you have met the overall target in the measurement period prior to April 2011.

Your performance will be measured every 12 months. The measurement period will be known as the "CCL Year" and this will run from October 1^st to September 30^th each year. At each milestone, your performance data from the latest CCL Year will be compared to your performance in your base year. Hence for the first milestone in April 2003 your performance for the CCL Year October 2001 to September 2002 will be compared to your base year performance.

Because of the time taken to collate and validate performance data there is a time lag between the MPMA Climate Change Discount Scheme receiving the data and certification for the next two years being confirmed (see Table 3.2).

Table 3.2 Key Dates in the MPMA CCLA

Varying the Target

Your Underlying Agreement with DEFRA allows both you and DEFRA to review the targets at the end of the 2^nd milestone (Spring 2005) and 4^th milestone (Spring 2009). Whilst it is unlikely to be necessary, you will have the legal right to challenge any variation which DEFRA attempts to impose.

Production Parameters

Each site will need to identify appropriate production parameters to enable an SEC to be calculated. The Scheme Help Line can provide advice on appropriate parameters. The normal approach will be to use output quantity, split into sub-totals of different product categories, if required. The categories of output need to be chosen on a site by site basis.

For the metal packaging sector some of the key product categories include: cans, sheets, ends, closures, cups, shells, impressions and drums.

Changing Product Mix

With a relative target you can opt to use variations in product mix and product output as a basis for adjusting the first three milestone targets.

See Information Sheet 8 for more information on product mix and product output issues.

Missing a Milestone Target

Under the Agreement between the MPMA and DEFRA you will only be responsible for your performance if the sector as a whole fails to meet its target. This means that even if you have failed your target, but the sector – made up of the sum of all participants – has achieved its target, your facilities will still receive the discount for the following 2 year period.

If however, the sector fails its target, individual facilities (or groups of facilities under one company) will become accountable for their performance. In this event and if the performance of your facilities is less than the milestone level you risk losing the discount for the subsequent 2 year period.

Assessment of performance however, is not hard and fast. Risk management procedures have been designed to give some degree of latitude up to the end of the 3^rd milestone. Details of tolerance bands and product mix algorithms are given in Information Sheet 8 on Risk Management.

If, having considered these factors, your performance is still below the milestone level the Levy Discount will be removed for the subsequent 2 year period. However, you will have the opportunity to re-establish compliance with the target in the next milestone period.