HERTFORDSHIRE COUNTY COUNCIL
Agenda Item No.
POLICY AND RESOURCES CABINET PANEL
THURSDAY 19 NOVEMBER 2009 AT 2.00PM
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IMPLEMENTATION OF THE CARBON REDUCTION COMMITMENT IN
HERTFORDSHIRE COUNTY COUNCIL
Report of the Director of Environment and Commercial Services
Author:
John Rumble, Sustainability Team Leader, Forward
Planning
Tel: 01992 556296
Executive Member: Derrick Ashley, Environment Planning and Waste
1.
Purpose
1.1. To provide the Panel with an update on progress to date with
preparations for the introduction of the Carbon Reduction Commitment in
April 2010. This paper sets out the budget implications of the
Commitment for the authority and the proposals for the formal
management arrangements for the scheme.
2.
Summary
2.1. Hertfordshire County Council is legally required to participate in the new
national emissions trading scheme, the Carbon Reduction Commitment,
from April 2010 along with up to 5,000 other public and private
organisations across the UK. This scheme requires the County Council
to purchase emissions allowances for all of its CO2 emissions from
property, including schools and streetlighting. This amounts to
approximately 130 – 150,000 tonnes of CO2 and, at an allowance cost of
£12 per tonne, will mean a budget requirement of up to £1.8 million per
annum. This money should be returned to the organisation as part of a
recycling repayment to participating organisations, subject to an
adjustment based upon a bonus / penalty payment system determined
by performance in reducing CO2 emissions during the year.
2.2. Progress on meeting the requirements for participation in the CRC is
well underway and the budget implications will be considered as part of
the county council’s integrated planning process, although the first
payment for allowances will now not need to be made until April 2011.
Discussion on the formal management arrangements for CRC is
underway with the required responsibilities within the scheme needing to
be notified to the regulator, the Environment Agency, in April 2010.
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3.
Recommendations
3.1. That the Panel note that the budget issues associated with the
organisation’s participation in the CRC will be considered as part of the
county council’s integrated planning process.
3.2. That the Panel note that the Director of Environment and Commercial
Services will be responsible for CRC and that delegation will be
reviewed to ensure that he is able to operate the scheme across the
authority.
4.
Background
4.1. The CRC is a new mandatory emission trading scheme that aims to
improve energy efficiency and reduce the amount of carbon dioxide
(CO2) emitted in the UK. It will affect approximately 5000 large private
and public sector organisations across the UK including HCC.
4.2. The CRC will be run and regulated by the Environment Agency and will
begin in April 2010; it is scheduled to run indefinitely. There will be an
introductory phase lasting three years when carbon allowances will be
sold at a fixed price, likely to be £12 per tonne CO2. The County Council
will have to purchase enough carbon allowances to cover all emissions
that we are liable for under the scope of operations defined within the
CRC legislation, this includes:


All property for which HCC has responsibility to pay energy bills.
All Local Authority (LA) controlled schools and non LA controlled
schools including voluntary aided and funded schools, foundation
schools and academies
Street lighting
4.3. Emissions from the above sources will be called our ‘CRC emissions’
and could amount to circa 130,000 – 150,000 tonnes CO2, depending on
the final scope of the scheme, at a cost of around £1.5 - £1.8 million.
Schools are likely to account for 70-80% of our CRC emissions and
allowance costs.
4.4. The revenue generated by the Environment Agency within the CRC
scheme from the sale of carbon allowances will be ‘recycled’ to
participants six months (October) after the annual sale in April. Each
organisation will receive a larger or smaller recycling payment than the
cost of allowances purchased in that year according to their position in
the performance league table. This performance is judged on the
organisations emission reduction over the previous year and is relative
to the performance of other CRC participants. This means that there will
be competition amongst the estimated 5000 plus participants from both
public and private sector organisations to obtain a position in the top half
of the performance table in order to maximise their recycling payments.
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Similarly those in the bottom half of the table will receive some element
of penalty, i.e. not getting back their total cost of allowances.
4.5. The timeline for the introduction of the CRC and the actions required
during the initial three-year first phase is shown in Appendix I.
5.
Progress to date
5.1. Work on preparing HCC for the implementation of CRC is progressing
well. A CRC project team has been established with cross-departmental
representation. Distinct work streams have been identified and the work
items currently being progressed under each work stream are
summarised in Appendix II. Updates and progress are fed into and
monitored by the Climate Change Board. To support the implementation
and administration of the CRC, we are recruiting a Carbon Reduction
Project Officer and it is expected that a candidate will be in place by the
end of the 2009.
5.2. In addition, to help better prepare for CRC, we are participating in the
second phase of the Local Government Information Unit’s (LGiU)
Carbon Trading Public Sector Programme. This programme began in
April 2009 and will run until March 2010. It offers HCC the chance to get
some experience of emissions trading in a safe training environment and
experience is being disseminated amongst the CRC project team.
5.3. A review of the legal requirements of the CRC has been commissioned
from legal services to ensure that we are meeting all of the requirements
of the CRC and this is expected to be completed in April 2010 in time for
the registration period for the scheme.
6.
CRC Budget Process update
6.1. Implementing and complying with the CRC will result in significant
financial costs for HCC although it is anticipated that the majority of
these costs will be recouped through the CRC’s payment recycling
scheme. Recommendations for funding of CRC costs have been
passed through both Resources and Climate Change Boards and will be
considered as part of the county council’s integrated planning process.
6.2. It should be noted that there are considerable uncertainties in the level of
credits that the county council will receive as this will depend upon the
relative performance of all of the participating bodies. If the county
council performs better than the average, we should receive back more
in credits than we have to pay out in purchasing allowances. However, if
we perform worse than the average, we will receive less back than we
pay out. It is the aim that these will as a minimum balance, but this
cannot be guaranteed.
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6.3. The risks associated with the organisations participation in the CRC are
being incorporated into the appropriate risk registers in Corporate
Services and Environment & Commercial Services. The main risks
associated with CRC are;

Financial Risks:
o
o
o

Reputational risk:
o
7.
Scope of emissions HCC is liable for. The final CRC
scheme rules are yet to be finalised (this is expected to be
complete in autumn 2009) and there is the risk that the scope
of emissions will widen at greater financial cost. For example
HCC may be responsible for all Further Education colleges in
Hertfordshire, which could double the amount and cost of CRC
allowances1.
Uncertainty of recycling payment. HCC may not get back
the cost of allowances paid out, and it will be very difficult to
predict the recycling payment HCC will receive as it will depend
on the authority’s position in the overall scheme league table.
Risk of incurring penalties for non-compliance. There are
various provisions within the CRC scheme for penalties, both
financial and criminal, for organisations that fail to meet
deadlines or do not comply with reporting and operational
requirements of the scheme.
CRC participant’s performance will be published in a publicly
available league table every year.
Key Considerations for HCC
7.1. As HCC meets the qualification criteria for the first phase of the CRC, it
has a legal obligation to register as a participant. The registration period
runs from April 2010 to September 2010. On registering HCC has to
provide details of three nominated contacts:

One Director
Two contacts at operational level who the Scheme Administrators
(the Environment Agency) can deal with on behalf of HCC
7.2. The nominated Director will take on responsibility for the CRC ‘Evidence
Pack’. The evidence pack is an up to date record of all documents
related to energy use and will need to contain the detailed data on which
the overall annual emissions figures reported by HCC are based. The
Scheme Administrators will carry out risk-based audits on average once
every five years. This will focus on the evidence pack and will check the
accuracy of reported annual emissions. There are financial and criminal
1
This is currently being queried with the Scheme Administrators, the Environment Agency
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penalties for incorrect reporting and failure to keep accurate records,
these start at one-off fines of £5,000 and can be a severe as up to three
years imprisonment for the worst breaches of the CRC schemes
requirements. As the evidence pack will need to be signed by the
Director, the nominated Director will be liable for any criminal penalties
on behalf of the organisation.
7.3. The nominated director for CRC will be the Director of Environment &
Commercial Services (John Wood). Delegated responsibilities will need
to be reviewed to ensure that the scheme can run effectively within the
authority.
7.4. It is anticipated that the two operational contacts will be the Sustainability
Team Leader and the Carbon Reduction Project Officer, both from the
Environment & Commercial Services Department.
7.5. The means by which the authority manages the bonus / penalty
payments arising from the scheme has yet to be decided. This will be a
particular issue for the organisation in how it acts to incentivise energy
investment by the organisation and schools in particular. Current
guidance from DCSF asks local authorities to use potential bonus
penalty payments to incentivise school performance. Should the
authority decide to use this approach it would require the creation of
internal performance league tables and the means to manage and
administer them.
8.
Financial implications
8.1 The financial issues arising from the implementation of the CRC within
the County Council have been fed into the 2010/11 budget process.
This could amount to circa £1.8 million for carbon allowance purchase
annually from April 2011. It is anticipated that this funding will be
recouped through the CRC’s payment recycling scheme.
Background information used in compiling this report
DECC, Government response and policy decisions to the consultation on the
draft order to implement the carbon reduction commitment, October 2007.
London Energy Project, ‘Preparing for the Carbon Reduction Commitment: A
practical guide for local authorities and the wider public sector’, 2009
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Appendix I: CRC Introductory Phase Timeline
Start of the Introductory Phase
Start of
Qualification
Period for
Introductory phase
During 2008,
participants with at
least one HH
settled meter
settled on the half
hourly market need
to determine their
total HH electricity
consumption.
Start of the Footprint Year.
Participants monitor their total energy
use over the footprint year.
1st Annual Reporting Year Participants
monitor their energy use over the
coming year 2010/11 in order to
submit an annual report in July 2011.
For this year only participants will not
have to purchase CRC allowances.
Start of Registration Period for the
Introductory Phase.
2008
Start of 2nd annual reporting year
Participants should monitor energy
use during the 2nd year 2011/12.
Start of 3rd annual reporting year
Participants should monitor energy use during
the 3rd year 2012/13.
1st sale of allowances
Participants pay for allowances to
cover forecast 2011/12 emissions.
2nd Sale of allowances
Participants buy allowances for forecast
2012/13 emissions.
Start of 2nd Phase
2010
2009
November
The EA sends out information on CRC to
all half-hourly billing addresses.
The EA sends out information on qualification
guidance to all potential participants.
2012
2011
April
End of the Qualification period
for Introductory Phase.
2nd Recycling payment
Revenue from 2st sale
2012/13 recycled
1st Recycling payment
Revenue from 1st sale
2011/12 recycled
October
July
End of registration
period for the
Introductory Phase.
End of footprint year for
Introductory Phase.
End of first annual reporting year
for Introductory Phase.
Footprint Report due
Participants submit
their Footprint based
on 2010/11 footprint
period data.
1st Annual Report
due
Participants submit
an annual report on
2010/11 data.
2013
October
April
July
2nd Annual Report
due and allowances
surrendered for the
2nd year 2011/12
Participants submit
their Annual Report
and surrender
allowances for
2011/12.
July
3rd Report due and
allowances
surrendered for the
3rd year 2012/13
Participants submit
their Annual Report
and surrender
allowances for
2012/13.
Timeline 1 – Introductory Phase
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1st Auction of allowances
Participants bid for allowances for 2013/14 forecast emissions.
Start of Qualification
Period for Second
Phase
Participants with at
least one HH settled
meter need to monitor
their total HH electricity
consumption.
Start of 2nd Annual Reporting Year
Participants must monitor energy use
during the 2nd year 2013/14.
Start of the
Second Phase
Start of Footprint Year
for Second Phase
Participants will need
to monitor their total
energy use over the
footprint year
2010
Start of Registration for the
Second Phase
1st Annual Reporting Year for the
Second Phase Participants must
monitor their energy use over the
coming year in order to submit an
annual report in July 2013.
Participants will not have to purchase
CRC allowances for the first annual
reporting year of the second phase.
2011
Registration for the
Second phase ends
Qualification period for the
Second phase ends
2012
Footprint Report due
Participants submit
their Footprint Report
based on 2011/12
footprint period data
Start of 3rd Annual Reporting Year
Participants must monitor energy
use during the 3rd year 2014/15.
2nd Auction of allowances
Participants bid for allowances for
2014/15 forecast emissions.
1st Recycling payment
Revenue from April 2013
sale recycled.
2013
1st Annual Report due
Participants submit their
annual report for 2012/13
2nd Recycling payment
Revenue from April 2014
sale recycled.
2014
2nd Annual Report due
and allowances
surrendered
Participants submit an
annual report and
surrender allowances for
2013/14
Timeline 2 – Second Phase
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Appendix II: CRC Work Streams and Current Work Items
CRC Work Stream
Finance
Current Work Items
Identification of all CRC related costs and options for funding. See section 4 on Budget Process Update.
Legal
Exercise to determine the scope of emissions that HCC is liable for under CRC. This is important for registration
in April 2010 and to help determine allowance purchase costs.
Data & Systems
 Scoping how HCC will meet CRC data requirements and systems requirements
 Promoting installation of automatic meter readers (AMRs) in approximately 200 schools to support CRC data
collection.
 Promoting recruitment of two dedicated school energy advisors to support AMR monitoring in schools and
provide energy efficiency advice
 Papers were presented to Climate Change Board and Resources Board in July outlining recommendations
on installation of AMRs and recruitment of schools energy advisors, which have been agreed. Herts Property
is now working with CSF Finance to finalise how the AMR installations and school energy advisor posts will
be funded.
Energy Efficiency &
Investment
Communications
 Communication to HCC Facility Managers on CRC and need to reduce energy (via The Source publication)
Climate Change Board
Papers on:
 CRC and implications for HCC (Apr 2009)
 Budget Implications of CRC (Jun 2009)*
 Approach to Support CRC Data Collection (July 2009)*
 CRC Costs and Funding Options (Sept 2009)*
* These papers were also presented to Resources Board
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