Proposed changes to Climate Change Agreements could increase carbon emissions

Firms which are eligible for Climate Change Agreements (CCAs) should find it easier to comply and some will save money under new Government proposals. However, the Government has not presented any estimates of the impact it will have on emissions.

The changes are intended to simplify the structure of the CCAs, making them easier to operate, and, the Government says, maintain their effectiveness in cutting carbon emissions.

But in the absence of any calculations on emissions, the fact that the Treasury will be better off as a result makes me suspicious that this is the real reason for the changes - and they don't care about the impact on emissions.

Read on to see what the changes are and how the Government benefits...

Current arrangements

CCAs apply to all energy intensive firms or sites that have to pay the Climate Change Levy, and cover a wide range of sectors, from steel, chemicals and cement, to agricultural businesses, such as intensive pig and poultry rearing.

Sites that are smaller than the size thresholds of the Pollution Prevention and Control (PPC) Regulations, but which would otherwise would qualify, are also eligible for a CCA.

This is rated at 47p per kWh for electricity, 16.4p per kWh for mains gas and 1.05p per kg for LPG. But 65% discounts (reduced from 80% last April) are available for signatories of a CCA. Part of the revenue from the CCL is used to fund energy efficiency initiatives, including The Carbon Trust (which is having its budget cut by 40%).

The current Climate Change Agreements are due to expire in March 2013. However, the Government announced in the 2011 Budget that CCAs will be extended to 2023 and that the Climate Change Levy discount on electricity will be increased from 65% to 80% from April 2013.

Under the current arrangements, if a sector meets its target for reducing carbon emissions, then the whole sector becomes eligible for a discount on the Climate Change Levy. If individual sites fail, the whole sector fails.

This approach has been criticised by the Environmental Audit Committee both on economic grounds (poor value for money for the taxpayer) and because it is unfair.

The proposals

So the Government is now proposing that all sites will instead be required to meet their targets on an individual basis. However, the downside is that this will mean an increase in cost to industry of £0.3m.

Furthermore, sites will have to report on their energy consumption every year, instead of every two years as now - resulting in another £0.2m cost increase. This will affect 2,384 participants.

However, Greg Barker claims in his foreword to the consultation document that overall the measures will cut the costs to business by £2.4 - £3.4m during the life of the scheme.

Savings will be made by removing the need to duplicate trading and verification with the EU Emissions Trading Scheme, by aligning reporting periods with the EU ETS, and by modifying certain other rules.

Most savings will result from industry no longer incurring costs in trading allowances at the end of their target period.

Treasury wins

The Treasury will also see a benefit. Savings will come to the administration of the scheme from amalgamating the current 54 sectors into 49 sectors and preventing further sectors from joining CCAs.

These sectors will, however, then lack the stimulus to save energy that the scheme provides, and miss out on the discounts on the CCL that would result from meeting their targets - which the Treasury will, of course, keep.

The Treasury will also benefit from the fact that the get-out clause for those missing their targets is no longer carbon trading - nor will firms be any more able to appeal for their targets to be amended in cases where legislative changes resulted in an increase of energy use or carbon emissions.

Instead, the proposed Buy-out Mechanism means that firms will pay the Treasury a fixed amount for each tonne of carbon dioxide a site underachieves against its target. Further fees wlll also be payable as penalties for other misdemeanours.

In addition, some 24 sectors will find their costs will increase because they will have to spend more time negotiating in what's called a 'bottom-up' way with others in their sector in order to meet their target. their costs could be up to an extra £165,000 per negotiation.

The changes would come in at the beginning of 2013. The first new certification period will commence on 1 April 2013 with the subsequent ones on 1 June 2015, 1 June 2017, 1 June 2019 and 1 June 2021.

The effect on carbon emissions

The Government is arguing that the changes will mean that participants will have less challenging emission reduction targets to meet, but that more targets will be met than at present, leading to overall higher savings and less reliance on purchasing allowances in order to meet targets.

This is because the cost of compliance will no longer be able to be spread between organisations within a sector, as has been done in the past.

Currently, the cost of complying with targets for those sectors that had missed them is very small, as the typical UK ETS allowance price has fluctuated between 50 pence to £4 per tonne of CO2.

By switching from using allowances, to make up the difference between a site's performance and its target, to a buy-out mechanism with a pre-determined price, DECC believes this is likely to lead to a greater willingness to accept challenging targets.

However, the Government has not actually calculated the effect on emissions that switching to the new system will have.

The Impact Assessment accompanying the consultation document admits that it "is unclear whether emissions and the incidence of non-compliance will be higher or lower after these administrative changes have taken place. But as they are likely to have positive and negative impacts to the level of target setting and compliance, they are assumed to be negligible."

The level of energy-intensive energy use of a site at which site becomes eligible for discounts is to reduced from the current 90% or more of the total energy use of the site to 70%. The Government claims that this will result in a small increase in energy efficiency.

But the removal of the need to independently verify claims of exceeding the target could result in some false claims.

Before the consultation is over on 28 October, it is vital we have a better idea whether these proposed changes will mean fewer, or more, carbon emissions.

Air and sea transport must start trading carbon

European finance ministers meeting in Brussels yesterday called for international shipping and aviation greenhouse gas emissions to be included in a global carbon pricing system.

In a decision immediately hailed by Oxfam's climate change adviser Lies Craeynest as a ″double win", they said that this would become ″potential source of revenues that would also generate the price signal necessary to efficiently achieve emission reductions from these sectors".

The EU is already resolute that aviation will be included in its Emissions Trading Scheme after 2012, despite opposition registered by at least 120 countries at an International Civil Aviation Organisation (ICAO) meeting last October.

The finance ministers issued a statement on climate finance which said that although raising the $100 billion per year by 2020 to tackle climate change - as agreed by world leaders in Copenhagen 2009 - is challenging, it is feasible.

They noted that Euros 7.2 billion will be available up to the end of 2012 in Europe, and challenged other countries to come up with their share of the cash.

One of the mechanisms for raising this cash must be a ″robust carbon market" to drive ″the carbon price necessary for low carbon investment to achieve global mitigation objectives in an efficient way".

They acknowledged that public finance is a particularly important source for developing countries striving to meet their reduction targets, that is difficult to provide in the current economic climate.

It says therefore that ″the carbon pricing of global aviation and maritime transportation is a potential source of revenues that would also generate the price signal necessary to efficiently achieve emission reductions from these sectors".

The International Maritime Organisation (IMO) and ICAO must therefore "develop without delay a global policy framework that avoids competitive distortions or carbon leakage".

However the statement also squarely challenges developing countries to develop "improved general business and policy frameworks". If these are in place it will inspire confidence for cooperation between public and private climate financiers and the development of ″an effective and efficient Green Climate Fund", as proposed by the UNFCC and delegates at Cancun last December, and currently being designed.

The system finance ministers are proposing would work by imposing a global cap on carbon dioxide-equivalent emissions. Companies that then emitted more than their share of the gases would have to trade permits.

"It is a unique opportunity to control a major and rising source of climate changing emissions and at the same time generate desperately needed cash," said Oxfam's Craeynest.

Shipping companies - close to agreement?

The IMO was tasked with the job of reducing emissions from shipping in 1997 and has so far failed to come up with a solution.

On April 27 this year, Climate Action Commissioner Connie Hedegaard signalled that she had lost patience with them.

In response, a spokesperson for the IMO argued that ″the work is heavily advanced", and promised it will be discussed further at the next meeting of the group's Marine Environment Protection Committee during 4-15 July.

This body's meetings occur but twice a year. At the last one, there was no consensus reached on how to proceed with the next stage of its climate change strategy, but delegates did decide to force new ships to include an Energy Efficiency Design Index (EEDI) and a Ship Energy Efficiency Management Plan (SEEMP), and that as long as the required energy-efficiency level is attained, ship designers and builders can be free to use the most cost-efficient solutions for the ship. This is a strategy that is compatible with a carbon pricing system.

It also decided to task a Working Group on GHG Emissions with preparing details of a carbon trading system. At the end of March, this Group came up with a variety of proposals, ranging from a contribution or levy on all CO2 emissions from international shipping; or only from those ships not meeting the requirements of the EEDI, via emission trading systems; to schemes based on a ship's actual efficiency, both by design and operation, based on the SEEMP.

It's these that will be discussed at the July meeting, and the European finance ministers will be hoping that at last, after 14 years of deliberation, the IMO will finally reach a consensus.

Airlines resist change

The ICAO has also been looking at the issue for a long time since 2000 - and is also considering market-based mechanisms. This is the body tasked by the Kyodo Protocol with working with developing countries to reduce emissions from international aviation.

It has issued draft guidance on the voluntary use of emissions trading and on levies, but it has consistently resisted taxes of any sort on aviation fuel.

Last October all member nations committed to increasing fuel efficiency by 2% a year up to 2020; to achieving carbon neutrality for the industry by 2020; and to producing international standards for aeroplane engine emissions by 2013. But these are general goals with no specific requirements for individual member nations. There is no forum for discussing such requirements until the ICAO's next session - in 2013.

Biofuels are considered to be the only viable option for reducing aircraft emissions, and several companies are successfully trialling various fuels.

Air travel is responsible for some 700 million tonnes of carbon emissions each year (around half of which comes from international aviation), representing 2.4% of the world's total emissions. It is highly debatable whether all such journeys could be propelled by renewable fuels.

It's clear that Europe believes that a global carbon pricing scheme is the only mechanism which will deliver the emission savings required and this is why it is is piling the pressure on to these two crucial industries.

UK earns Euros 1bn from emissions trading as prices rise - & the Treasury won't spend it on green tech

The United Kingdom is making huge profits from its emissions trading under the ETS, but not ploughing the revenue back into green investment.

It has earned more than one billion euros from the auction of EU Allowances since its first auction in Phase II of the EU Emissions Trading Scheme (EU ETS) in November 2008, according to a report by carbon offsetting company Carbon Retirement.

Only Germany earns more from these auctions.

The revenue goes straight into the Treasury's general pool, and despite European Commission proposals that at least half of auction revenues should be used to help reduce greenhouse gases, develop renewable energies and clean technologies, and shift to low-emission forms of transport, the UK has so far refused to do so.

An attempt by the European Parliament to force EU member states to comply when passing the Aviation EU ETS directive was rejected by the EU Council of Ministers.

Revenues raised through allowance auctioning are set to rise dramatically in Phase III, with aviation joining the scheme in 2012 and additional greenhouse gases and manufacturing processes being covered from 2013.

At a carbon price of €15 per tonne, the UK stands to generate €328.5 million this year. Using Carbon Trust estimates of a price of €28 per tonne in 2013 and €39 per tonne in 2020, the UK would earn €32-64 billion over the eight years of Phase III.

Earmarking this revenue for green projects works well elsewhere in the EU. Germany currently earmarks €400 million of auction revenues annually, with €280 million set aside for national projects and €120 million for international projects. The report says other EU countries also earmark environmental taxes for various related initiatives.

Energy companies pass on the cost of carbon to their customers in the form of price rises, as their own profits soar. Carbon Retirement comments that as a result the most vulnerable members of society are being tipped into fuel poverty, and the trend is likely to continue.

“Earmarking revenues from EU Allowance auctions for subsidised community energy generation or energy efficiency in social housing would be a very sensible way of balancing out the potential adverse effect of the EU ETS on this group.”

The money could also be used to help finance the Government's proposed Green Investment Bank.

Aviation and climate change

Most of us know that flying's bad for climate change, and that we should really holiday closer to home, take the train and videoconference.

Aviation has by far the greatest climate impact of any transport mode, whether measured per passenger kilometre, per tonne kilometre, per € spent, or per hour spent. See the Transport and Environment report, 'Clearing the Air: the myth and reality of aviation and climate change'.

The opening of the St Pancras rail link to the continent on November 14 will allow you to travel in style from the centre of one city to the centre of another faster than ever, for a comparable price to flying in many cases (eg London to Berlin is more or less the same price on BA/tube/rail to/from airport). So what if it takes longer? It's sure going to be less hassle and you can take the sleeper.

But people will still fly - so should aviation be included in the EU emissions trading system (ETS)?

The ETS

The EU thinks so, and so does the British government. The EU is pressing ahead despite a major rift within the UN body responsible for the sector.

The airlines don't like it. They are kicking and screaming.

The 2007 Assembly of the International Civil Aviation Organisation (ICAO) - a body representing the airlines but also responsible, under the Kyoto Protocol, for reducing emissions from international aviation - passed a resolution earlier this month saying countries should sign separate agreements with all other countries operating in its airspace before applying emissions trading to their carrier airlines.

This was strongly backed by the United States.

To enter into separate agreements would be technically illegal under the Kyoto treaty and disables the whole point of the ETS.

Since 1997 the ICAO has failed to endorse, or issued negative statements on, every serious policy option for cutting greenhouse gas emissions from the sector.

In retaliation EU member states, and member countries of the wider European Civil Aviation Conference (ECAC) which includes Norway, Switzerland and Turkey, made a 'reservation' against the resolution.

Though ICAO guidance is not legally-binding, the EU has until now acted within its framework. This 'reservation' signals the end of that commitment.

João Vieira, of the Brussels-based group Transport and Environment, called for this body to be disbanded. "After a shameful decade of obstruction and inaction, ICAO must now be stripped of its environmental responsibilities."

But will it make any difference?

But will bringing aviation into the EU Emissions Trading Scheme (ETS) in line with current proposals have any effect on burgeoning air travel?

Not according to a report by the University of Manchester's Tyndall Centre. Its research found that even if carbon dioxide permit prices rose up to €50 per tonne it will have little impact on the price of and demand for flights - and hence will barely dent the rise in emissions.

Current predictions of the carbon credit price are in the range of €15-35. For example consultancies Ideacarbon and Econ said in September that the price for the next five years could be around €15 because of imports of credits from developing countries.

At this price the ETS isn't going to make much difference to anything, let alone airline emissions.

The Low Carbon Kid says pressure must be kept up on governments to curtail flights - and make flying as unfashionable as owning a slave.