GHG Monitoring in the UK Emissions Trading Scheme

1. GHG Monitoring in the UK Emissions Trading Scheme Tatiana Bosteels COP8 New Delhi October 2002

2. Agenda • The UK ETS • Aim of the GHG monitoring system • Key Principles • Issues behind the requirements • Monitoring requirements

3. UK Emission Trading Scheme • Economy wide “voluntary” scheme with a variety of entry routes and types of participants: • Climate Change Agreement • Direct Participants through government incentives • Future potential participants • Projects • Links with other national and regional schemes

4. Aim of the Monitoring system • Ensure accurate and transparent calculation/estimation and reporting of emissions • By provision of the detailed steps for measuring and reporting emissions • Final Objective: • Facilitate third party verification of baseline and yearly performance

5. Monitoring procedures • Procedures Intended to be consistent with • Good practices issued by the Intergovernmental Panel on Climate Change (the IPCC) • UK Environmental Reporting guidelines • Climate Change Agreements

6. Monitoring System Key Principles • Faithful representation • Of transactions and event, quantify uncertainties • Completeness • Data within bounds of materiality and rules of scheme • Consistency • Over time between baseline and subsequent years • Reliability • Data free from material misstatement and bias • Transparency • Data shall be replicable by a third party through provision of sufficient information and a clear audit trail

7. Issues Behind Monitoring Requirements • Double Counting. • Only one participant to claim responsibility for a single emissions source. • Verifiability. • The Baseline and claimed emission reductions shall be supported by data of sufficient quality. • “Cherry Picking”. • Must present the complete picture of emissions, no picking of preferred sources only • National boundary. • Emissions of UK- based operations only • Leakage. • Ensure that Participants cannot claim emissions reductions by shifting the responsibility outside their Source List.

8. General Rules of Monitoring System • Management Control • Dominant influence over the emission from a source • Ability to direct the financial and operating policies governing the emissions from the source • Materiality threshold in annual reporting figures and baseline • Relative significance or importance of misstatement in the total emissions figure • Material if: • Broad guideline: aggregate uncertainty in the total emissions figure > 5% of total emissions • Accepted Reasons for Exclusions of sources • Lack of management control • Based on size threshold (individually <1% total baseline) • No protocol for the source and not willing to develop one • Lack of verifiable data during baseline period

9. Direct Participants • Participants shall be monitoring and reporting emission reductions at the source level • Sources can be aggregated to a level which makes sense in the context of the business activities • The collection of one or more point sources of the same type within a site • “point source” is any separately identifiable point from which greenhouse gases are emitted

10. Direct Participant – Emission Sources • Energy related emissions sources include: • On-site combustion of fossil fuels for on-site use • On-site consumption of electricity that is generated off-site • On-site consumption of electricity generated on-site • On-site consumption of heat or steam generated off-site • On-site consumption of heat or steam generated on-site. • Exclusions • Heat or electricity exported from a site will not be counted • Process emissions • CO2 process emissions: protocols provided for main activities • non-CO2 process emissions: participants to propose protocol to the Government

11. Direct Participant Monitoring requirements • Identifying source list and calculating baseline • Identify the sources it is bringing into the Scheme • Management control • Source within a sector • verifiable emission data • eligibility for entry • coverage of GHG • Coverage within reporting guidelines • Calculate Baseline emissions • Estimate annual emission over period 98-99-00 • Identify sources below the size threshold (1%) • Keep a written record of the decisions taken at each step

12. Direct Participant Monitoring requirements • Data to be monitored and reported on annual basis • Series of protocols that specify in detail the methodology to be used to measure and report emissions from sources. • Effective data management system must be in place • Processes for internal audit, data checking, and quality assurance • Clear definition of responsibilities for data management • Risk management procedure in place • Track adjustments to Baselines, Source Lists and targets

13. Direct Participant Monitoring requirements • Series of protocols that specify in detail the methodology to be used to measure and report emissions from sources. • Protocol for energy related emission • Fuel consumption related CO2 emissions • Import of export of heat and power • Renewable • Protocol for process related emissions • Cement manufacture • Lime production • Limestone and dolomite use • Soda Ash • Ammonia – use of fuels as feedstock • Metal production • Waste incineration, Municipal Solid Waste and Sewage • Non CO2 process related emissions: developed by participants • CH4 from Flaring • HFCs

14. Example of required data - Baseline

15. Example of required data – Annual Emissions

16. CCA Participants • Minimum Monitoring requirements • To demonstrate compliance with target • Get 80% reduction of Climate Change levy • Requirements for trading into the ETS • More stringent requirement • Independent third party verification

17. CCA Participants Minimum Requirements • Energy use by fuel • Including fuel ascribed to bought-in heat or electricity from CHP or other dedicated plant and excluding fuel ascribed to heat or electricity exports • Measure of output • For sectors with efficiency targets • Qualitative performance measures • Where these form part of the agreed target • Volume of allowances bought or sold in the Scheme

18. CCA Participants Minimum Requirements • Energy figures to be reported in terms of primary energy units • A standard set of conversion factors is to be used to convert to delivered energy • Same factors as Direct participants but for two exception: LPG and Coke • Conversion factors for energy efficiency targets • Common unit = tonnes of CO2 equivalent • Must take account of both the average emission factor, and the annual production level • Guidelines provided

19. CCA Participants trading in the UK ETS • However, to sell emission reduction in the market • Must have third party verification • energy use • emissions data • output and product mix data where relevant • evidence of a systematic approach to data management • Must follow monitoring requirement of Direct Participants

20. Thank You Tatiana Bosteels ERM Climate Change Team Tel: +44 20 7465 7318 email: tatiana.bosteels@erm.com

21. Monitoring procedures • Procedures Intended to be consistent with • Good practices issued by the Intergovernmental Panel on Climate Change (the IPCC) • IPCC guidelines are designed for use at the national level, but the recommended methodologies for data collection, calculation of greenhouse gas emissions,reporting conventions, plus both data quality control/assurance and treatment of uncertainties in the data are also relevant for emissions trading. Need to adapt to site level • UK Environmental Reporting guidelines • Same methodology, but different approach as ETS must be more prescriptive on issues such as eligibility, scope, inclusion of sources, boundaries, and double counting • Climate Change Agreements

22. Aim of the Monitoring Guidelines • Specify the key principles which Direct Participants must follow when calculating/estimating and reporting emissions. These principles shall be taken into account in the development of new protocols submitted by Direct Participants to DEFRA. These principles are given in section 2. • Give practical guidance to Direct Participants on a number of the requirements of the Scheme outlined in the framework document. These are provided in sections 2-5. • Provide the detailed steps for measuring and reporting emissions. These are set out in the annexes

23. Monitoring System Key Principles • Faithful representation • Information shall represent faithfully the transactions and other events it either purports to represent or could reasonably be expected to represent. • Uncertainties shall be quantified and data shall neither be systematically overestimated nor underestimated so far as can be judged. • Uncertainties shall be reduced so as to be immaterial. • Completeness • Complete within the bounds of materiality and the rules of the Scheme, such that information shall not be misleading or unreliable in terms of its relevance. • All sources above the Size Threshold within the defined and chosen Source List shall be included in the Baseline and annual emissions. • Leakage effects shall be accounted for

24. Key Principles • Consistency • Consistent methodologies and measurements shall be used between the Baseline and subsequent years. • Data shall be comparable over time. • Estimates shall be comparable with the UK inventory estimates and with international guidelines including IPCC guidance. • Reliability • Baseline and annual emissions and related disclosures shall be free from material misstatement and bias and capable of being depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. • Changes in methodologies shall derive from continuous improvement of data quality and shall be clearly stated and documented to allow for year-to-year comparisons.

25. Key Principles • Transparency • Reported data shall be replicable by a third party through provision of sufficient information and a clear audit trail. • References and methodologies shall be clearly documented. • Changes over time shall be clearly documented to allow clear understanding. • Third party verification by an accredited verifier shall be undertaken

26. Issues Behind Monitoring Requirements • Double Counting. • It is not acceptable for more than one Direct Participant to claim responsibility for a single emissions source. This is of primary importance for Direct Participants when determining the sources over which they have management control. • Verifiability. • The Baseline and any claimed emission reduction from a source shall be supported by data of sufficient quality. Consideration of the key principles underpinning the Reporting Guidelines should help guide Participants towards obtaining data of sufficient quality to satisfy an independent accredited verifier.

27. Issues Behind Monitoring Requirement • “Cherry Picking”. • Participants shall not be allowed to include only those elements of their operations which they consider would provide the easiest scope for emissions reductions. There is an obligation to present the complete picture of emissions in order to prevent organisations from claiming emissions reductions in one area of their operations while simultaneously increasing emissions from other areas. • National boundary. • Since the Scheme is to contribute to UK emissions reduction (and hence to the UK’s target under the Kyoto Protocol), the scope for reporting emissions under the Scheme will not extend beyond the scope of the UK inventory. Thus for the purposes of the UK Scheme, the emissions associated with UK- based operations must be separately identifiable.

28. Issues Behind Monitoring Requirements • Leakage. • Having defined the Source List for reporting emissions, it is important to ensure that Participants cannot simply claim emissions reductions by shifting the responsibility outside their Source List. One example of this would be to outsource a product or service which transfers accountability of the associated GHG emissions to another organisation. Such changes need to be accounted for.

29. Direct Participant Monitoring requirements • Effective data management system must be in place • Clearly defined responsibilities for issues such as data collection, collation, aggregation, and quality control • The existence of appropriate tools or procedures to support consistency in data estimation and collation within an organisation • Methods for systematic data archiving and process documentation • Processes for internal audit, data checking, and quality assurance. • Processes for taking corrective and preventative actions. • Clearly articulated methods of data interpretation. • Processes for periodic review of the data management system itself.

30. Direct Participant Monitoring requirements • In order to track adjustments to Baselines, Source Lists and targets following data must be recorded • Identify any changes in management control to individual sources within the Source List that are above the Change Threshold as defined in the framework document • Identify whether the cumulative effect of changing management control of sources within the Source List meets or exceeds the Change Threshold as defined in the framework document • Provide evidence showing whether sources within the Source List have been divested to another Direct Participant or divested in any other way (including closure) • Provide evidence of any contractual arrangements for maintaining a source in the Baseline in the case of divestment or acquisition from another Direct Participant • If substitute sources are added to the Source List, evidence shall be provided showing details of this substitution.

31. Climate Change Agreement Participants • Energy figures to be reported in terms of primary energy units • where an agreement is set in terms of an energy or energy efficiency target, the reported quantity is primary energy (i.e. losses associated with delivery of the energy are associated with the end-user). • Conversion factors for energy efficiency targets • Converted to a common unit, i.e. tonnes of CO2 equivalent • Must take account of both the average emission factor, and the annual production level. • Guidelines provided • (Guidelines for carrying out this conversion are given in Climate Change Levy technical guidance notes NA(99)30 and NA(00)07. ) • A standard set of conversion factors is to be used to convert to delivered energy • Same factors as Direct participants but for two exception: LPG and Coke

32. Methodologies for calculating/estimating CO2 • Protocols • emissions from fuel-related sources • Emissions from industrial processes (termed .process emissions.).

33. BAU Emissions ‘98-’00 average = 2002 baseline Govt payment £/tonne 2002 target 2003 baseline Successful bid quantity Emissions tCO2eq Govt payment 2003 target 2004 baseline Govt payment 2005 baseline 2004 target Govt payment 2005 target 2006 baseline Govt payment 2006 target 2002 2003 2004 2005 2006

34. Outline of proposed UK ETS adapted from ETG slide UK Renewable Obligations: ROCs, Energy efficiency Commitments ETS, JI, CDM : AAUs, ERUs, CERs Emission Saving Projects 0.3mtC pa? “Unit” Participants “Absolute” participants Gateway CCA cos with output related target Incentives bidding cos 2 mtC pa? CCA cos with absolute targets 2.5mtC pa? Reconciliation retire permits Reconciliation retire permits Approval and Certified credits Emissions Trading Authority