INFORMATION SHEET 21

Options for Sites that Beat the 1^st Milestone Target

It is expected that a significant number of sites will save more energy than is required in the 1^st Milestone Year Target Period (i.e. from October 2001 to September 2002). This Information Sheet provides guidance about how to maximise the benefits gained by beating your target.

Any site that achieves or beats the 1^st Milestone Target is certain of being re-certified for CCL discount in the 2-year period April 2003 to March 2005.

If a site beats the target the discount scheme will calculate the amount of "over-performance" in terms of tonnes of carbon dioxide (CO₂). For example, a site has a 1st Milestone Target of 500 kWh per tonne and actually achieves a performance of 450 kWh per tonne. If the site was making 10,000 tonnes of product the over-performance is equivalent to:

kWh of surplus energy saved................ = (500 minus 450) times 10,000

This quantity can be converted into CO₂ by taking the mix of fuels into account.

The site in this example has emitted 75 tonnes of CO₂ less than the amount allowed by the 1st Milestone Target. This surplus CO₂ reduction can be of benefit for the company or for the sector.

Five Options for Benefiting from the Surplus CO₂ Reduction

A site that has over-performed in the way described above can choose one of five options described below. The most suitable option will depend on a number of parameters such as the amount of carbon available and the price of carbon in the UK ETS (Emissions Trading Scheme).

Option 1: Sell via the UK ETS. The surplus CO₂ can be sold to another company that needs to buy CO₂ in order to meet its target (either a company with a CCA target or a company that is a "direct participant" in the ETS). In order to sell the surplus CO₂ you will need to have your emissions "verified" – see explanation of verification overleaf.

Option 2: Bank via the UK ETS. An interesting alternative is to "bank" the CO₂. You can put your surplus CO₂ into an official ETS Trading Account. At a later date (e.g. at the 2^nd Milestone) you can choose to sell that CO₂ or you can use it to help you meet your own target. To bank the surplus CO₂ you will need to have your emissions verified.

Option 3: Ring fence via the Discount Scheme. Ring fencing is very similar to banking. The key difference is that you do not need to have your emissions verified at this stage. If you ring fence you are reserving the right to bank or sell at a later date. If you want to use the ring-fenced credits at a later date for your own use to achieve future milestones, or want to bank or sell the credits, you will need to have the emissions verified.

Option 4: Share the surplus CO₂ with other sites in your company (this option only applies to a company with more than 1 site in a CCA). If some of your sites have over-performed whilst others are going to miss their target you can use the surplus CO₂ to help the under-performers meet their targets. This can either be done using Option 1 (i.e. you can use the ETS to "sell" CO₂ from one site to another). Alternatively you can adopt a single target for all the sites in your company. With a "company bubble" of this sort the over-performers and under-performers within the bubble are automatically netted off against each other during the CCA reporting process. There is no need for emissions to be verified. The company bubble option was offered to all Participants when your CCA was set up (see Question D5 of your original Application Form). It has been agreed with DEFRA that companies can opt to restructure their CCA into a company bubble if they did not select this option originally.

Option 5: Help your Sector by leaving surplus CO₂ in the CCA. If you do not adopt any of the 4 options above, your surplus CO₂ will help the Sector achieve the Umbrella Agreement Target. If this target is met all the sites in the Agreement will automatically be re-certified.

When Must You Decide Which Option to Adopt

With the exception of Option 4 you can choose between the options at any time before January 24^th 2003, which is the deadline for reporting all emissions trading transactions to the Discount Scheme. When we send you feedback about your CCL Year 3 performance in October / November 2002 we will include a detailed up date of this Information Sheet to help you decide the best option to select.

If you wish to adopt Option 4 and restructure your CCA into a "company bubble" this will have to be done earlier. We have not yet agreed a deadline with DEFRA but it is likely to be September 30^th 2002 or earlier.

What is Emissions Verification

If you want to adopt options 1 and 2 above (selling or banking) you need to have your emissions verified. This will involve a review of your data by an independent verifier who must be certified by UKAS (the UK Accreditation Service). Independent verification is a basic requirement of the UK ETS.

Your company will need to pay for the costs of verification. The Discount Scheme is currently trying to negotiate a Group Verification Methodology to try and minimise the costs for our Participants. Further details should be available after Easter – we will provide an update as soon as possible.

Note: you do NOT require independent emissions verification to obtain your CCL discount, to buy CO₂ credits from the UK ETS or to ring fence surplus CO₂. Independent verification is only required if you wish to sell or bank emissions.