INFORMATION SHEET 8

RISK MANAGEMENT OPTIONS

During negotiations it has been recognised that there are a number of circumstances in which it is fair to review the performance of a site that has missed a milestone target, in order to consider whether a site should still be re-certified for the Climate Change Levy discount.

These circumstances fall into 2 groups:

• Firstly, there are certain circumstances in which factors outside the control of the Participant could influence performance. These are known as "relevant considerations".

• Secondly, a Participant may have made good efforts to meet the target, but have just missed the target or alternatively a change in product mix or output level may have influenced performance. In these circumstances, "risk management" options apply.

Relevant Considerations

In the following circumstances you can negotiate a milestone target failure with DEFRA:

1. Regulatory Constraints. If legislation forces a Participant to adopt new equipment or systems that increase energy consumption, this consumption can be added to the base line energy performance of the site. An example of this would be some form of environmental regulation (e.g. related to odour abatement) that obligates the site to install new equipment (e.g. an incinerator to remove odours from an exhaust air stream). Providing the new equipment is properly sub-metered, the extra energy consumption can be taken into account at each subsequent milestone.

2. Planning Constraints. If you miss a milestone target because you cannot implement an important project due to planning problems, then this can be considered as a justification for missing the target. For example if a CHP project cannot proceed either because of Local Authority planning constraints or due to problems with obtaining a suitable gas supply.

3. Energy Supply Disruptions. The effect of any major unexpected disruptions in energy supply can be taken into account. Any such disruption would need to be significant and not built in to either the base year performance or the target. Adjustment to the figures would not be allowed, for example, for routine interruptions to the gas supply, which were expected as part of the supply contract. Significant changes to energy prices will not be considered of relevance at each milestone, but may be considered in the renegotiations allowed at the 2^nd and 4^th milestones.

Risk Management Options

In addition to the relevant considerations described above DEFRA will changes in product mix and product output level to be taken into consideration up to the 3^rd milestone.

Product Mix and Product Output risk management only applies to Participants with a relative target (such as the carbon per unit output currency selected by MPMA). DEFRA accept that the SEC of a site is strongly influenced by both product mix and product output. For example:

• If product output drops considerably, the SEC usually gets worse because there are often "fixed loads" that use the same amount of energy for any level of production.

• If a site makes several products, each may have a different "energy intensity" (e.g. ends and closures). If there is a significant switch of product mix between the base year and current milestone year this could adversely influence energy efficiency.

In these circumstances DEFRA will consider the changes in output or product mix, PROVIDING that the Participant can properly document the influence on energy efficiency, using an agreed algorithmic method. For metal packaging companies this means that a good record of product output, split by product type is required. Also, there must be sufficient energy sub-metering and regular gathering of energy data to show the link between production and energy efficiency.