FSN’s earlier article on the CRC outlined the overall intention of this new carbon emissions trading scheme, and the requirement for organisations who qualify, (those whose purchased more than 6 000 MWh electricity through half hourly meters in 2008) to register their 2008 consumption with the Environment Agency by end July 2010. Qualification for CRC is based solely on electricity consumption, but once in the Scheme, emissions from electricity, gas and static fuel consumption are included. In this article, Niki Leahy, senior FSN writer looks at the significant accounting and process issues.
The registration requirements alone present many qualifying organisations with significant challenges, not least in terms of understanding the qualification rules as they relate to their organisational structure and legal composition. In addition, those organisations that qualify as participants of the Scheme must identify and locate all 2008 invoices for electricity purchased via half hourly meters in order to submit total consumption data and meter point administration numbers, MPANs where appropriate.
If your company qualifies as a participant, the requirements for the second compliance year, 2010 - 2011, are even more onerous. Organisations will need to estimate their 2010 energy consumption data for all energy consumed – not just electricity as required for 2008, but also gas and other fossil fuels, in order to estimate their output of carbon emissions for 2011 and purchase sufficient carbon allowances to cover their forecast. By July 2011, each participant must submit the “footprint report” for the 2010 – 2011 year, and produce an evidence pack of supporting information on the footprint report. Up until 2013, the cost of carbon allowances will be fixed at £12 per tonne, and the estimated cost of allowances for organisations of different sizes according to their energy consumption is given below
|
CRC Energy Efficiency Scheme – estimated costs
|
|||
|
approximate energy bill |
£750k |
£7.5m |
£15m |
|
CRC footprint (tCO2) |
5 000 |
50 000 |
100 000 |
|
annual allowance cost |
£60k |
£600k |
£1.2m |
Source:- Carbon Trust 2009
Revenue raised by the Government from the sale of allowances will be recycled back to participants after a 6 month period, but the amount of money paid back to each participant will depend on the relative performance of the organisation in a Performance League Table. The use of performance league table metrics and actions that can be taken to improve relative performance in terms of reducing carbon emissions will be covered in the next article. The initial implications for finance managers are considerable and include impacts on:-
- Cash flow – as the costs of allowances will need to be financed for six months prior to the recycling of revenue date
- The balance sheet and P&L will need to capture the implications of allowance purchases and the anticipated and actual recycle payments, (including any bonuses or penalties relating to relative performance). Participants will recognise allowances for 2011 – 2012 as an asset on the balance sheet, which is entitled to a subsequent refund from the Government
- Internal audit procedures for energy and carbon data that will be required to demonstrate and ensure that the data collected is robust and can be substantiated, as the Carbon Trust noted in 2009, “it is crucial that participants have a robust data system to capture the information required. Inaccurate reporting is a risk as carbon / energy management systems have rarely been subjected to the same level of scrutiny as financial systems. Current feedback suggests that the majority of organisations could be misstating their carbon footprint by more than 5% with current emissions reporting practice. This puts the onus on organisations to review and challenge data early”. It is expected that fines for misstatements of carbon footprint greater than 5% could incur a penalty of £40 per tonne of carbon misstated
- Compliance and regulatory risk management procedures, given the financial implications of non compliance, late reporting and incorrect reporting are considerable
Participating companies will need to develop an IT solution for recording carbon emissions data, as well as hold details, (in the form of process maps) for the systems and procedures used to collect, aggregate and handle the energy consumption data from which the carbon conversions will be made.
Participants will also be required to detail the following in formation when submitting the emissions forecast for 2011, (the footprint report and evidence pack):
- The identity of each supplier
- The premises supplied by the supplier
- The suppliers who constitute core consumption, (i.e. gas daily bread gas meters, AMR gas meters and gas from larger non daily read supply points, and electricity consumption )from settled half hourly meters, pseudo half hourly meters and non domestic meters capable of measuring maximum electricity demand
- The period of the relevant supplyThe type of electricity and gas automatic meters and non half hourly meters
- The meter identification number for each meter point administration number or MPAN and the bottom row of 13 digits is the MPAN see the illustration below
- Any other meters installed – non-half hourly, manual, pseudo half hourly and so on
In the Evidence pack, participants will need to submit copies of all records to corroborate meter readings and consumption within a given qualification period. The evidence required includes:
- Copy invoices
- AMR (Automatic Meter Reading) data
- Supplier meter readings
- Annual supplier statements for AMR and pseudo meters which should be available on request from your energy supplier
- A manual self-read meter reading process, explaining how the meter readings are reconciled to copy invoices
In addition to “core” energy consumed, participants will need to develop a system or reporting procedure which will enable then to accurately determine the usage of other fuels that are covered by the CRC. These energy sources include (but are not limited to)
- Fuel oil for heating
- Diesel used in plant or vehicles that are not registered and taxed for road use as these vehicles are exempt
- LPG or similar used for heating or generation of power
- LPG used in vehicles that are not used in registered for road usage.
A full list of fuels is available from the Environment Agency, and the EA define residual fuels as “Fuel used in particular (but not only) by means of combustion of that substance to release energy for the participant’s use
- Any other consumption of supplied gas or electricity not accounted for under “corroboration of meter readings” section above.
- The purchase or delivery of the relevant fuel (fuel defined as per the definition above)
- The amount of fuel stored at the beginning and end of the period. (e.g. opening and closing balances for fuel tanks)
- Any onward supply of fuel, i.e. fuel not used by the participant but supplied to another party
- Where blends of fuels have been consumed, a record of those blends.
- Methods and assumptions used for the measurements for example fuel gauges on tanks, dipping etc.
Participants should also calculate a “standard usage”, such as opening stock, less closing stock, plus purchases, less fuel passed onto another party for their use. The EA provide a fuel conversion table for calculating quantities of fuels used into carbon dioxide emissions equivalents.
When calculating all CRC related emissions, participants will include some emissions that are covered by other climate change and carbon management initiatives in the total energy consumption calculations. As these other emissions are subsequently excluded from the CRC allowance calculations and must therefore not be included in the CRC return, it is incumbent on participants to keep evidence in support of why these emissions have be excluded. This in effect means that participants will have to maintain records of any CCA agreements or EU ETS allowances within the CRC system.
The CRC also requires that participants keep “Special Event Records” which document unusual or unexpected events that in their opinion, have significantly affected their level of energy consumption, or the accuracy and consistency of measurement. Typical examples are:
- Major system failure
- Major disruption to operations
- Major failure of meters etc.
All records of energy consumed and output of carbon emissions for years after the monitoring year, (2010 – 2011) must be held until the end of the CRC phase to which the records relate, and then for a further seven years following the end of the phase. In practice this will mean that some records will need to be held in excess of 10 years. These records may be paper based, but ideally in terms of ease of access, security and efficiency, such be incorporated into existing IT systems.
So what implications does this have for participating organisations that need to either develop a system for capturing all the information required above? They will certainly need a main CRC data management system, which functions as a central data store, with web based access. Such a system must automatically collate meter data from fiscal and sub metering systems where they are enabled, allows for CSV upload, (file format compatible with Excel) or manual data entry which will enable the following:-
Manual readings of all utilities
- Bulk fuel deliveries
- Building data for benchmarking purposes
- Scope 3 greenhouse gas emissions data, (energy consumed indirectly and in supply chain)
- Integration within ERP
There are a number of commercially available carbon systems for capturing the required CRC data as outlined above. Such systems combine data management and reporting within a performance management frameworks and flexible reporting suite which support an integrated approach to overall organisational energy and carbon performance, and which include target and budget setting, KPI capture for benchmarking purposes, and also track return on investment and payback periods and enable scenario planning for the assessment of financial impacts of improved performance. These include the ECIS platform developed by Carbon Systems Australia, Analysys Mason and Verisae.
The final article in this series will investigate the importance of understanding the bonus, (financial incentive) and penalty implications of the CRC performance league table, the purchase and potential trading opportunities of the carbon allowances and the revenue recycling metrics.
