the scotch whisky association

SPIRITS ENERGY EFFICIENCY COMPANY Consultation on Simplifying the Climate Change Agreements Scheme – Consultation response from the Spirit Drinks Sector The Spirits Energy Efficiency Company (SEEC)1 welcomes this consultation on proposals to simplify the Climate Change Agreements (CCA) scheme for the next phase (2013 to 2023). We have closely followed the development of the new CCA scheme and have contributed throughout the consultation process to date. We welcome the confirmation given in Budget 2011 that the 54 sectors eligible for inclusion in the existing scheme will continue to be so in the new scheme up to at least 2023. To date, the CCA scheme has proved to be an effective and wide-reaching climate change policy measure which has helped to deliver cost-effective emission reductions across a range of energy intensive industries. Putting aside the headline environmental benefits, one of the scheme’s key successes has been the way in which small companies have opted-into the scheme. In our sector, small single-site companies participate alongside some of the largest alcohol beverage producers in the world. We have completed the consultation response form (Annex A – attached). But first we set out a few key points, some of which are highly relevant but have not been included in the consultation document’s list of questions. Key points 1. Eligibility The rules of the current CCAs to date have prevented the spirits industry’s largescale packaging sites from participating in a CCA. Those packaging sites are an integral part of the of the overall production process of spirit drinks. The production of spirits is energy intensive. Because of this anomaly, distillers pay an additional £0.5m each year in CCL payments - £5m over the course of the CCAs so far. In addition to those direct costs, a further consequence of this quirk in the rules is that some, not all, packaging sites will be brought under the scope of the CRC Energy Efficiency Scheme – a scheme that was not designed to capture energyintensive industrial sectors such as spirits. Other food and drink producers are able to include their packaging operations in their CCAs on account of them being Directly Associated Activities (DAA). Why not spirit drinks? The packaging of spirits, just as the packaging of tomato ketchup, beer, and carbonated soft drinks, is one part of the production process. As with those products, it is not practical to sell spirit drinks unless they have been bottled. For reasons of efficiency, the bottling of spirit drinks tends to take place within large packaging facilities, many of which are located in the central belt of Scotland. We accept that stand-alone spirits bottling facilities are unlikely to satisfy strict energy-intensity criteria. However, it is doubtful whether any other food and drink packaging operation (except perhaps chilled or frozen goods) would do so in its own right. We believe that the review of the CCA scheme presents an opportunity to reconsider eligibility for the scheme to ensure that energy intensive industrial sectors, such as the manufacture of spirit drinks, qualify for a CCA throughout the production process – from distilling to packaging. 1

SEEC is a joint venture between the Scotch Whisky Association and Wine & Spirit Trade Association. Page 1 of 15

DECC’s guidance paper CCA-B01 (paragraph 29) states that packaging operations may still qualify as being a DAA even if there is not a physical connection with the stationary technical unit. This implies that goods may be moved from the stationary technical unit to the packaging operation (DAA) by lorry. Example 24 of the guidance paper then states that the bottling of Scotch Whisky is not a DAA on account that the earlier storage in warehouse for maturation purposes is a DAA. However, many of the large packaging operations which bottle Scotch Whisky also bottle other spirit drinks such as gin and vodka which are not subject to maturation. They may be transported by bulk tanker directly from the distillery to the packaging site for bottling. Because of this anomaly, distillers face a significant competitive disadvantage when compared to other food and drink producers. That disadvantage is set to widen if the CCA exemptions are removed from the CRC Energy Efficiency Scheme as proposed in the recent consultation. In its response (of 30.8.11) to that consultation, the Scotch Whisky Association, pointed out that under the existing CCA rules, the proposals for the CRC scheme would lead to some, not all, spirits packaging sites being brought under the scope of the CRC scheme. However, if the bottling of spirits is eligible to qualify for a CCA, it is highly likely that this would increase the scope of the industry’s emissions that are covered by a climate change policy measure, as those packaging operations which will fall outside of the scope of the CRC scheme would probably join the CCA scheme. Widening the CCA eligibility criteria would help the Government achieve its green ambitions and reduce administrative burdens for business. The CRC Energy Efficiency Scheme was not designed to capture energy-intensive sectors such as the manufacture of spirit drinks. The most effective domestic policy measure for such sectors is the CCA scheme. There does not appear to be a logical reason why spirits bottling plants should be prevented from joining our CCA scheme. 2. Proposal to amalgamate sectors for target negotiations Our response to question 6a explains why we believe this proposal will not achieve the objectives it sets out to. In brief, the proposal to amalgamate sectors will increase the likelihood of inaccurate targets – setting challenging but realistic targets is fundamental to the success of the scheme. We are strongly opposed to this proposal. 3. Role of sector associations Which ever body is chosen to administer the scheme, we strongly believe that retaining the current role and position of sector associations is fundamental to the efficient operation of the scheme. Although the consultation paper proposes to amalgamate some sectors, there are no proposals on the role sector associations will play in the new scheme. It should be noted that sector associations have built up over ten years of experience in managing the scheme on behalf of their respective sectors and have helped to reduce costs for both Government and business. Sector associations have played a vital role in the reporting and reconciliation process. We strongly believe that that should continue in the new scheme. For instance, in the spirits sector, SEEC has developed a robust methodology to ensure that movements of neutral alcohol (the ‘base’ spirit for spirits such as gin and vodka) are not double-counted either within bubbled target units or across the sector as a whole. Without this procedure, production volumes, and thus the results, reported on the CCA10 spreadsheet would not be correct. Furthermore, one site, an animal feeds plant in Speyside, reports its throughput using a different metric to all of the other sites. Because of this, we have needed to amend the

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calculations on the CCA10 spreadsheet for each target period to ensure that that site’s throughput is recorded correctly and does not feed into the sector’s throughput total. There is a real danger that these sorts of data handling issues may not be picked up if operators enter their data directly into the scheme administrator’s data entry portal. One consequence is that the results, which ultimately determine whom is eligible for a tax rebate, will not be correct. 4. Scheme administration We understand that the Environment Agency will be responsible for administering the scheme in England. We appreciate that discussions with the devolved administrations are currently taking place to determine which bodies may be responsible in those regions. However, what is not clear is what role any of the devolved administrators will have, and to which administrator sectors (or target units) with sites in different parts of the UK will report to. In the fifth target period, the spirits sector included 1 site in Northern Ireland, 3 in England and 67 in Scotland. SEEC is a joint venture between two trade associations: one based in Edinburgh; and one in London. One organisation has facilities within a bubbled target unit in Scotland and Northern Ireland, whilst another has facilities in Scotland and England. These characteristics will need to be considered when deciding the scheme’s administration and to which body sector associations and target units will report. 5. Publication of emissions data Our response to question 7 sets out our concerns on the problems, largely confusion, that may be created if emissions data is published. 6. Splitting of targets for EU ETS We have never supported the splitting of CCA targets for target units which also include EU ETS installations. We accept that the decision to split targets has now been taken. However, it must be noted that removing EU ETS energy use will largely leave electricity in a CCA and will create CCA target units which bear little resemblance to the facilities they cover. Phase III of EU ETS is set to include 5 large grain distilleries and a large malt distilling complex with an on-site animal feeds plant, and possibly a packaging site. The remaining 100+ malt distilleries and 2 grain distilleries fall out of scope. In order to meet their CCA targets, many distillers have targeted capital investments on the energy-intensive activities, e.g. boilers, within their CCA facilities. If those activities are removed from CCA target units, those affected companies will find it more difficult to meet their CCA targets as the emissions/energy use remaining within the CCA facility will generally be related to process emissions and some electricity consumption – areas where there is less scope for improvement. Electricity accounts for around just 20% of primary energy usage in the grain distilling sector. It is therefore imperative that the limited scope for further energy-efficiency improvements related to the residual CCA energy (i.e. electricity use) at target units covered by both a CCA and EU ETS is taken into account in any target negotiations. Furthermore, a much greater proportion of a grain distillery’s residual CCA energy (i.e. electricity) will be related to base load rather heat load. Base load is more independent of throughput than heat load. Another point for consideration is the impact of a change in product mix, as SEEC’s Specific Energy Consumption (SEC) will become more influenced by the performance of the (non-EU ETS) malt distilling sector which, because of a different production process, operates at a higher SEC than grain distilling. One final point to bear in mind in the target negotiation process is the likely increase in electricity use associated with

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increasing environmental compliance requirements such as wastewater treatment and water recycling. One company has advised that it expects environmental compliance to increase its electricity use by 5-10%. 7. Replacing the UK Emissions Trading Scheme with a buy-out mechanism We welcome the proposal to allow target units to bank surplus emissions for future use and not to require those emissions to be verified. In our response to question 8, we suggest that a further simplification would be to allow a company to transfer banked emissions to other target units within its company structure, rather than fixing banked emissions to a target unit. For example, a company may wish to place an EU ETS site in a different target unit to its other non-EU ETS sites. In such a scenario, we propose that it should be possible for the company to transfer banked emissions for reconciliation purposes between target units if they fall under the same Underlying CCA. The accompanying Impact Assessment suggests one of the key benefits for industry of the simplification proposals is the removal of the trading mechanism. We are not convinced that this will be widely viewed as a benefit. The proposed buy-out mechanism is likely to increase costs as operators will need to pay in the region of £12/tCO2 over target – considerably higher than the price per allowance on UK ETS. Based on performance in the fifth target period, we have calculated that SEEC participants would have paid over £200k into a buy-out fund for compliance purposes. 8. Recalculating the baseline We welcome the confirmation given at the Plenary meeting on 28 September that data from the fourth target period (1.10.07 to 30.9.08) will be used rather than data for the 2008 calendar year. We appreciate that sites affected by EU ETS will be required to remove EU ETS data (under the EU ETS Phase III definition of combustion installation) and/or sites affected by the change to the 90/10 rule. At the Plenary meeting it was suggested that the baselines will be established by the end of 2011. We would encourage AEA and DECC to reconsider this timescale and also to consult sector associations on draft guidance that will accompany the baseline data-gathering spreadsheet. 9. New entrants We are disappointed that new entrants will not be allowed to join the new scheme and qualify for the CCL rebate until April 2013. We believe that this is unfair, particularly for those companies who have invested significant sums in new efficient plants and have been denied access to the CCL rebate for a period of up to 3.5 years. 10. Terminology: Milestones, Target Periods and Certification Periods Paragraph 16 states that under the current scheme, target periods run for two years. We believe that this is not correct. The Umbrella and Underlying CCAs define the term target period. In our sector, target periods run for 12-months as set out in 1.1 of Schedule 2, the last of which operated from 1 October 2009 to 30 September 2010. It is not clear in the consultation for how long each of the Certification Periods will run and when they will begin. We assume that there will be an initial Certification Period beginning on 1 April 2013. In our response to question 3, we suggest that the proposed 3-month period for data submission following the end of the target

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period be extended to 4-months. This will allow companies to obtain final energy bills and gather other required data, and if necessary make payments to the buyout mechanism. This will have a knock-on effect on the dates and duration of each Certification Period as proposed in the table below: Correlation between proposed Target Periods, reporting deadlines and related Certification Periods Target Periods

TP1 TP2 TP3 TP4

1January 2014 1January 2016 1January 2018 1January 2020

Reporting Deadlines

2013 – 31 December 2015 – 31 December 2017 – 31 December 2019 – 31 December

30 April 2015 30 April 2017 30 April 2019 30 April 2021

Certification Periods CP1

1 April 2013 – 31 May 2015

CP2

1 June 2015 – 31 May 2017

CP3

1 June 2017 – 31 May 2019

CP4

1 June 2019 – 31 May 2021

CP5

1 June 2021 – 31 March 2023

11. State Aid approval We appreciate that it might not be possible to request State Aid approval from the European Commission for the new scheme until details have been finalised. However, it would be helpful for sector associations to receive updates on how those discussions are progressing. 12. Further information Further information on the above points and other points related to the consultation can be found in the attached consultation response form (Annex A). Note: when completing the response form, it was not possible to tick any of the response options. Because of this we have answered, “Yes”, “No”, or “Not sure” to each question. The Spirits Energy Efficiency Company 26 October 2011

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Annex A – Completed consultation response form

Consultation on the Simplification of the Climate Change Agreements Scheme Response Form You may respond to this consultation by email or by post. Please note that if you are accessing this document electronically you will only be able to enter text in the response fields. Respondent Details Name

Peter Clark

Organisation

Spirits Energy Efficiency Company

Address

20 Atholl Crescent

Town/City

Edinburgh

Postcode

EH3 8HF

Telephone E-mail Fax

Tick this box if you are requesting non-disclosure of your response.

Please Return by Friday 28th October 2011 to: Climate Change Agreements Team Department of Energy and Climate Change Area 1A 3-8 Whitehall Place London SW1A 2AW You can also submit this form by email: [email protected]

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Consultation Questions Consultation Question 1

Do you agree that defining in legislation the eligible processes covering the current 54 sectors, provides a worthwhile administrative simplification over reassessing eligibility for all sectors? Response

Yes

Reasoning

We do however strongly believe that DECC must consult all sectors on their definitions prior to legislation being drafted. This could be done during the second consultation (covering scheme rules and agreements) now rescheduled to take place in early 2012. We do have a significant and long-standing concern on the eligibility criteria which has prevented stand-alone spirits packaging sites from participating in our CCA. There is an overwhelming case for such sites to be included – this has been set out earlier in this consultation response.

Consultation Question 2a

Do you agree that reporting targets at the end of the 2 year milestone period strikes an appropriate balance between reducing administrative burden and providing industry with a further incentive to make efficiency improvements? Response

No

Reasoning

Reporting performance for the target period at the end of the twoyear period is not likely to reduce administrative burdens when compared to the current scheme under which target units report their performance biennially. The proposal will however reduce costs compared to a proposal in previous consultations to report annually. One consequence of moving to consecutive 24-month target periods is that participants are likely to face a significant cost increase if they do not meet their target outright and purchase the emissions shortfall under the buy-out mechanism for CCA compliance. Under the current scheme, target units were able to surrender UK ETS allowances to make up a CCA shortfall for each 12-month target period. Extending the target period to 24-months is likely to increase the number of allowances (tonnes CO2) that will be required if a target is not met. In our response to DECC following the CCA Plenary meeting held on 3 September 2009, we explained that SEEC participants do see

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value in the non-target period. Some companies have advised that they schedule energy saving projects, which often increase energy use during commissioning, to coincide with the non-target period. Those projects deliver significant energy savings in the longerterm. The effect of commissioning new energy saving investments must be factored in to the target negotiation process. We do agree that operating consecutive 24-month target periods is likely to have a lesser administrative burden than consecutive 12month target periods, largely as reporting would only need to take place once every two years. The accompanying Impact Assessment (IA) contradicts the consultation paper proposal to report once every two years. The IA states that, “the Government has decided that there will now be a requirement to report annually”.

Consultation Question 2b

What are the additional costs of reporting energy use for the year? Cost Reasoning

Consultation Question 3 It is planned that reporting periods will commence on 1 January and data will be submitted for Reconciliation on or around 1 April. Do you foresee any problems with this arrangement? Response

Yes

Reasoning

The proposed timeframe for reporting performance is tight – we believe a more realistic timescale is four months. This will allow companies the time to obtain energy bills and other data covering the end of the target period, and to make payments to the buy-out mechanism if required. It should be possible to collect, collate and report data within four-months following the end of the target period if the data requirements are similar to the current (CCA10) data requirements.

Consultation Question 4

Do you consider that 2008 would be the most appropriate year to use as a common baseline year start date?

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Response

Yes

Reasoning

We welcome confirmation given at the CCA Plenary meeting (28.9.11) that the baseline will be based on the performance in Target Period 4 (1.10.07 to 30.9.08) rather than the 2008 calendar year. This will reduce burdens on participants (other than those with EU ETS installations) as energy and production data for the target period has already been collected and submitted.

Consultation Question 5

Do you agree that the new CCA scheme should include a target review in 2016 to ensure targets remain challenging? Response

Yes

Reasoning

We understand that the review will effectively apply to the two target periods beginning in 2017 and 2019. However it should be noted that the review will only be able to take into account performance data for the first target period (2013-14); the consultation paper suggests that one of the criteria to be used in the review is to assess the performance of sectors in previous target periods. Whilst it might be possible to also consider data from the baseline (Target Period 4 of the current scheme), it will not be possible to consider data from Target Period 5 because that data will not be adjusted to take into account the changes to EU ETS such as splitting and the broader combustion definition, or changes to the 90/10 rule. Possibly a more important question, and one that has not been asked in this consultation, relates to the proposed criteria that will be considered during the review process. The “commercial position of the sector” may be a difficult metric to calculate and to factor into the review process. We welcome confirmation that a previous proposal, to take into account the “status of the carbon market” will not be considered. In our responses to the consultations in 2009 and 2010, we argued that the carbon market is an independent influence and that CCA targets should not be tightened if the price of carbon on the internationally traded carbon market falls or fails to achieve a predetermined level. Whatever the criteria employed in the review process, it must be noted that there are three possible outcomes from the review: targets are tightened; targets are relaxed; or, no change. There should not be an automatic assumption that targets will always be tightened following the review.

Consultation Question 6a

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Do you agree there is benefit in amalgamating some sectors into a smaller number of sectors for negotiation purposes under the new CCA Scheme? Response

No

Reasoning

Setting challenging but realistic targets is fundamental to the operation of the scheme. The scheme’s success will be defined by the accuracy of the targets set. We do not see how amalgamating heterogeneous sectors, such as the broader food and drink sector as suggested in the consultation paper, can deliver accurate and meaningful targets. Each sector differs in terms of growth projections, throughput measurement, level of energy intensity, energy usage, early investment in energy saving technologies, potential for future energy efficiency measures, exposure to different legislation, exposure to international competition and international markets, and structure and commercial position, among other things. We are doubtful that each of these factors, which affect each of the ten food and drink sectors in different ways, will be carefully considered when negotiating targets under this proposal. We do not agree that this proposal will reduce burdens, particularly for business. We believe that the proposal will do just the opposite, particularly if one sector unfairly shoulders unrealistic targets when compared to others because its specific circumstances have not been taken on board in the target negotiation. For Government, the likely cost of negotiating targets with the current individual CCA sectors will be dwarfed when compared to the cost savings associated with outsourcing the administration of the scheme, and the potential income that will be generated by the buy-out mechanism. If the buy-out mechanism was applied to our fifth target period, SEEC participants would have needed to have paid over £200k into the buy-out mechanism to achieve compliance (based on a buy-out price of £12/tCO2 and adjusted to exclude EU ETS double counting). There is also the issue about how such an amalgamated target will be expressed: kWh/tonne, kWh/kg, kWh/litre of pure alcohol, kWh/hectolitre of product, or kWh/£k. These are the current target metrics covering the ten food and drink sectors proposed for amalgamation.

Consultation Question 6b

Do you have any suggestions for how this can be done? Suggestions

Retain the current CCA provisions relating to the role of the sector associations.

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Consultation Question 7

Do you agree with Government’s proposal to publish emissions data? Response

No

Reasoning

We appreciate DECC’s desire to increase transparency and accountability by publishing CCA emissions data. However, we are concerned that the publication of emissions data will lead to confusion. This is because emissions will relate to target units rather than individual sites. Therefore emissions data for one target unit might include multiple sites, whilst for another it might relate to a single site. The carbon intensity of production varies greatly between sites. In the spirits sector a gin or vodka distillery, which re-distils neutral alcohol produced elsewhere, will emit considerably fewer emissions than a malt distillery in Scotland which is producing spirit from raw materials. Some sites also carryout additional activities, such as animal feeds processing, which increase emissions. Confusion is also likely to arise as EU ETS related emissions will not be reported for CCA purposes. In the spirits sector this will remove a large quantity of emissions from the combustion of natural gas within the EU ETS covered grain distilleries, and will largely leave just the emissions related to purchased electricity, which is less than 8% of the energy requirement of the grain distilling sector. To avoid confusion, it will be important to clearly explain the scope of emissions reported if this proposal is adopted. We strongly believe that data other than total emissions (as proposed in paragraph 50 of the consultation) must not be released. This particularly refers to specific energy consumption data or production data which is commercially confidential.

Consultation Question 8

Do you agree that the introduction of a buy-out mechanism would provide a simplified, effective and flexible way for scheme participants to account for under achievement against targets? Response

Not sure

Reasoning

The buy-out mechanism is effectively an additional energy tax. We agree that it is administratively simple, although we have concerns on the potential cost to industry. As included in our response to question 6a, the buy-out mechanism would have cost SEEC participants over £200k if it was in place in the fifth target period. We support the proposal not to require over performance to be verified and that this may be banked for future use. However, we propose that rather than fixing banked emissions to the target unit,

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it should be possible for a company to transfer banked emissions to other target units within its company structure. For example, a company may wish to place an EU ETS site in a different target unit to its other non-EU ETS sites. In such a scenario, we propose that it should be possible for the company to transfer banked emissions for reconciliation purposes between target units if they fall under the same Underlying CCA.

Consultation Question 9a

Which price option do you think would be most appropriate for the buy-out mechanism? Option Reasoning

A For simplicity we favour option A. The buy-out price should be fixed before each 2-year target period begins. We also believe that the price should be no greater than 5% of the cost of the price of option B.

Consultation Question 9b

Do you think that CCA participants would undertake significantly greater carbon abatement under the option with the highest carbon price? Response

Not Sure

Reasoning

This depends on the price differential between the options. Clearly if the carbon price of one option was considerably higher than another, carbon abatement might be greater. However, the CCA scheme is not the only climate change mitigation measure affecting UK business. Some companies are also exposed to the CRC Energy Efficiency Scheme and EU ETS. As distillers have already invested significant amounts to reduce the energy intensity of production, financing further energy saving (carbon abatement) schemes becomes more expensive and difficult. The cost of abatement in those other schemes is likely to influence the level of carbon abatement in the CCA scheme, as will the industry’s exposure to other regulatory commitments.

Consultation Question 9c

Do you agree that the buy-out price should be reviewed before each reconciliation?

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Response

No

Reasoning

The buy-out price should be reviewed, and the price announced, before the start of the target period to which it applies. This will create a degree of certainty for businesses which will help with business planning. Clearly it would be unreasonable if the buy-out price was reviewed, and the price significantly increased during the reconciliation period after the target period has closed.

Consultation Question 10a

Do you agree that the introduction of a system of penalties would provide a more proportionate and effective alternative for some situations of non-compliance than the loss of Levy discount for two years? Response

Not Sure

Reasoning

On balance we welcome the proposal to introduce a system of financial penalties as an alternative to de-certification for minor infractions. We would expect that the level of the penalty would be proportionate, and that the key purpose of a penalty regime must be to encourage compliance. If the proposal is taken forward, a detailed explanation of each infraction listed in paragraph 69 of the consultation paper will be needed to ensure that that there is no ambiguity in interpretation. For example, at what point will “late notification of eligibility” attract a penalty? The agreements and scheme rules must clearly explain what is required of the operator and sector association in order to comply and to avoid a penalty. For example, operators will need to know exactly what their record keeping requirements are. We are concerned that the last infraction suggested for operators - “failure to comply with other obligations in the rules” - may leave the door open to the scheme’s regulators to impose penalties for minor ‘infractions’, which do not risk any loss to the revenue. Again this must be clearly defined in the agreements or scheme rules. We believe that the first infraction listed - “failure to report emissions in the target period by specified date” - should warrant a more severe sanction if this infraction does actually relate to the reporting of data as currently required under the “CCA10” reporting mechanism. The timely reporting of that data is a fundamental part of the scheme’s operation. To encourage data to be provided on time, we believe that operators should be liable to a daily penalty for each day the data is overdue with the final sanction of decertification after, say, ten days. Failure to provide the data after that date would result in decertification and a requirement to pay the aggregated daily fine. We also believe that operators should have the option to pay a

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penalty or ask to be de-certified for infractions. In the case of the first infraction listed, operators should only be allowed to opt for decertification if they apply before the deadline for data submission. We do consider this to be an unlikely event.

Consultation Question 10b

Are there any additional examples (to those listed above) of noncompliance that could be introduced to provide a more proportionate way of dealing with situations of non-compliance? Examples

No – as mentioned in our response to question 10a, the final infraction listed for operators may provide carte blanche to the regulator to impose a penalty for minor infractions.

Consultation Question 11

For each measure proposed in this document, can you estimate what the impact will be on your administration costs? (See below)

1.2.1 Target Periods, Milestone Periods and Reconciliation Cost

Proposal: Target periods to start in 2013, 2015, 2017 and 2019. Reconciliation to take place at the end of each target period and cover performance over the two years of the target period.

We anticipate that administration costs will be similar to the current scheme, although other costs, such as the cost of paying into the buy-out mechanism for operators could be significant – see our response to question 6a.

Reasoning

1.2.5 Target Negotiations Cost Reasoning

Proposal: Streamline the process of negotiating and reviewing targets by amalgamating sectors for negotiation purposes. It is impossible to establish costs for this proposal. Costs however are likely to increase. Costs to operators could rise because of the strong likelihood of inaccurate targets. In addition to the cost increases suggested in our response to question 6a, sectors within amalgamated sectors may need to agree a legally binding agreement if target negotiations take place in a Page 14 of 15

consolidated form. The accompanying impact assessment suggests that the savings to the Government of amalgamating sectors will save £28,000 – less than £520 per sector.

1.3.3 Release of information to third parties Cost Reasoning

1.4.1 Risk Management Tools Cost Reasoning

1.4.2 Penalties

Cost Reasoning

Proposal: Administrator to publish emissions data submitted at Reconciliations. Other confidentiality provisions to remain the same.

No quantifiable cost increase. As the administrator will be in possession of the data there should be no additional cost for operators or sector associations. However, as we have pointed out in our response to question 7, sector associations and operators are likely to receive questions seeking clarification on the data once published. Responding to such queries can be time consuming.

Proposal: In place of the UK emissions trading registry, a buy-out mechanism will be introduced for scheme participants to account for any shortfall against targets. There will be an opportunity for participants to ‘bank’ any overachievement against targets for a later date. Unknown as the buy-out price is to be confirmed as are the targets against which performance will be measured. The impact assessment suggests that the removal of the trading mechanism will be a benefit to industry. Although there will not be a requirement to register for the UK Emissions Trading Scheme (UK ETS) and there will be no verification costs, it should be noted that the buy-out mechanism will significantly increase costs compared to the cost of purchasing and surrendering allowances under UK ETS. As our response to question 6a states, the buy-out mechanism, if applied to target period 5, would have generated over £200k from SEEC participants.

Proposal: To introduce a system of financial penalties for minor infractions that do not warrant decertification or termination of CCAs. Therefore ensuring continued receipt of CCA discount. Unknown. It is not possible to answer this question as the rate of each penalty has not been set. However, to date, no SEEC participants have been decertified because they have failed to comply with obligations under their Underlying CCAs.

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