Supplementary memorandum by the Chemical
Industries Association (CC 69A)
OBSTACLES TO CONCLUDING HEADS OF AGREEMENT
Our demanding energy efficiency offer is conditional
On 20 December CIA, along with several other
Trade Associates, signed a Memorandum of Understanding with DETR
indicating our commitment to continue negotiating an energy efficiency
agreement in order to secure the 80 per cent rebate of the Climate
Change Levy for our members. This is conditional on the resolution
of a number of basic issues.
CIA seeks a sectoral target, not individual company
targets
CIA's offer is based upon an overall sectoral
target, as opposed to being based on the sum of individual company
targets, because we fundamentally believe that a top-down approach
is the only way to achieve an acceptable target for the sector
(see p. 127). We are concerned that those driving the legal drafting
process within DETR do not appreciate the potential consequences
of pressing for individual company targets.
We seek coverage for all member companies
We remain very concerned about the restricted
eligibility criteria for entry into negotiated agreements. We
have said from the outset that restricting eligibility to those
installations covered by IPPC regulations is illogical and will
exclude a number of our energy-intensive member companies—most
notably industrial gases, but also other, smaller companies—and
leave them exposed to the full impact of levy with no rebate.
We have proposed several ways to address this and are concerned
that all suggestions appear to have been rejected while, in the
meantime, we continue to be assured that the Government remains
open to alternative criteria being suggested!
Some competition policy anomalies remain
There remain a number of anomalies in terms
of the application of the levy which, unless addressed, could
give rise to challenge. As an example, current proposals would
lead to a difference in tax treatment for aromatic hydrocarbon
processes on oil refineries compared to those on synthesis refining
processes (petrochemicals).
Emissions trading must recognise the different
positions of electricity generators and consumers. . . .
CIA is pleased to see the encouragement which
is being given to the development of an emissions trading scheme.
We believe that a market for trading emissions of greenhouse gases
would in principle be a much sounder and potentially more effective
route to addressing climate change. Such a scheme must however
address some key concerns. The objective of emissions trading
is to address climate change by reducing greenhouse gas emissions;
the objective of the climate change levy, from our perspective,
hower is to change the behaviour of energy consumers by encouraging
more efficient use of energy. Whilst these two objectives are
largely compatible for electricity consumers, we are worried about
the potential for electricity generators to dominate an emissions
trading market (in a system which includes both generators and
consumers) by fuel switching which may or may not be linked to
improved efficiency.
. . . and not be introduced before it it introduced
in competing countries
We have long emphasised the international nature
of the chemical industry, both in its markets and in ownership
of facilities. We believe it is vital for emissions trading also
to move forward on an international basis. If the UK proceeds
with an emissions trading scheme ahead of competitor countries,
the need to obtain permits for new manufacturing facilities in
the UK could become a serious barrier to future investment here.
Timing
If these major issues can be resolved swiftly,
then CIA (at the time of writing) believes the existing DETR timetable
for reaching Heads of Agreement by the end of February 2000 is
still feasible.
CLIMATE CHANGE LEVY—FRACTION OF CIA
SITES' ENERGY CONSUMPTION FALLING UNDER IPPC
Energy usage can be split into the two categories:
Non IPPC can be split into the two categories:
— eligible for a rebate under our proposed
energy intensity criterion
The first run through the CIA energy consumption
numbers for 1998 which totals 374 petajoules (PJ) gives:
Primary energy:
|
| IPPC covered | 337
| = 89% (Marshall Report 83%)
|
| Non IPPC but eligible under our proposals |
35 | = 10%
|
| not eligible | 2
| = 1% |
|
This has been calculated on the basis of what CIA members
have told us—but we know this information to be incomplete—and
it is based on what we know to be outside IPPC rather than a bottom-up
approach to the IPPC sites.
We are confident that the "non-IPPC eligible" is
at least 10 per cent. It could be somewhat greater. The "non-eligible"
number has been rounded up from a known 0\5 PJ.
We have been told of a number of research sites with large
energy consumption which also have a partial IPPC qualification.
However the basic data for most of these sites is not included
in our 374 GJ starting point.
For comparison with the Marshall Report—part 53
|
| Sector | Sector code
| Energy use PJ
delivered
| Energy covered
by IPPC %
| Number of
installations
covered by IPPC
|
|
| Chemicals | 24
| 254 | 83
| 333 |
| Plastics | 25
| 56 | 5
| 1 |
|
The Marshall figures are based on delivered rather than primary
and do not include the by-product combustion and steam usage in
the CIA format.
In short, the IPPC criterion covers 89 per cent of our members'
energy use but "our" criterion would increase that to
99 per cent.
OPERATION OF AN "OPTION 1" SECTORAL ENERGY EFFICIENCY
AGREEMENT:
BACKGROUND
Under its Responsible Care programme, CIA has 10 years of
performance data for all of its member companies on a range of
indicators including energy efficiency, and health and safety
performance. We are able to produce graphs showing performance
over the period from 1990 to present day both at sectoral level
and for individual companies.
Our track record on energy efficiency is as follows:
— 15 per cent improvement between 1990 and 1998;
— a voluntary commitment (prior to CCL) to achieve
20 per cent improvement between 1990 and 2005.
Over a similar period (from 1986 to 1998) the industry sector
has also achieved a 60 per cent improvement in its performance
in Lost Time Accidents (from a frequency of 0.85 per 100,000 hours
worked in 1986 to 0.32 in 1998). In the period 1991-94, the sector's
performance was showing signs of "plateauing" and the
decision was taken to step up the peer review process and best
practice sharing within the sector.
This background demonstrates:
(1) a clear commitment to energy efficiency throughout
the sector;
(2) a sectorwide commitment to continuous improvement
in all aspects of health, safety and environment, in which energy
efficiency is an important element and has been for many years;
(3) CIA's experience in managing a sectorwide database
and using it to deliver real performance improvement by all participants,
using benchmarking, pressure, and help as evidenced by our improved
safety performance.
How would a sectoral agreement on Energy Efficiency Work?
(1) Derivation of the target
Our indicative target offer has been derived by a process
which has been reviewed in full with ETSU. The process has focused
on the most energy intensive processes within our sector but then
also takes account of other subsectors within the industry. The
process has also identified the extent to which new CHP facilities
will need to be installed in plants to achieve the target and
we have taken account of our member companies' views on investment
plans for CHP as far as they can forecast. ETSU have confirmed
that the target is challenging and a significant improvement on
our voluntary energy efficiency agreement.
(2) Member Company Sign-up to scheme participation
CIA has already set up a separate company for the purpose
of administering the negotiated Energy Efficiency agreement for
the sector. The CIA Broking and Trading Agency (CIABATA) will
employ its own chief executive and data will be managed via a
separate and confidential system discrete from any CIA database.
The overarching sectoral agreement will be between CIA and the
Secretary of State with CIABATA named as the appointed administrator
of the scheme for the sector. Member companies will sign a participation
agreement with CIABATA which will require the company to:
— acknowledge the sector targets and milestones;
— commit to playing its part in achieving the sectoral
targets and milestones;
— provide CIABATA with information as and when requested
(see later);
— actively participate in best practice sharing
workshops;
— conduct energy efficiency audits (all sites to
have completed first audits by 2003) and develop energy efficiency
improvement plans;
— agree to a benchmarking process to be carried
out by CIABATA based on data reported;
— agree that, in the event of the sector failing
to meet its target at any milestone, company data and the output
of the benchmarking process will be made available to the Secretary
of State (or his appointed representatives) for him to take a
view of individual company performance.
(3) Non-CIA member company sign-up to the scheme
Non-members of CIA who apply to join the CIA scheme will
sign up to the same agreement as for member companies. However
before they join there will be a need for additional steps to
be taken:
— assessment of eligibility (CIA proposes to base
its definition of sector eligibility on SIC codes 24, 25 and the
chemical processing elements of 23);
— assessment of capability to join and meet requirements
of CIA scheme (this will include an assessment of historic energy
efficiency performance including quality of data, future projections,
and capability of providing data required for future monitoring).
(4) Monitoring and Verification
Every year, beginning in January 2000, CIABATA will require
all scheme members to provide information on:
— the previous year's energy consumption and energy
efficiency, capital projects implemented plus evidence of energy
efficiency promotion and implementation in the workplace (eg training
courses). Progress in promotion and implementation will be monitored
using the established energy management system matrix;
— anticipated progress for the nex two years including
planned capital projects for energy efficiency, energy efficiency
audits and implementation plans.
CIABATA will maintain individual company records and graphical
plots for all participants showing historic performance trend
and projection for the next two years, these records will be confidential
to CIABATA. Each year the company's returns will then be used
to update the record and compare actual performance with plan.
An annual benchmarking exercise will then be conducted by CIABATA
involving qualified, independent third parties (eg ETSU) to review
each company's historic performance against a comparable peer
group of companies. (Where there are only a small group of similar
UK businesses, the peer group could include data from other countries—eg
the Netherlands). Poor performers in each group would be indentified,
and having taken into account history, evidence of efforts to
improve and any special circumstances (including opportunities
for trading), the poor performing companies would then be targeted
with a mixture of support and pressure.
At each milestone review CIABATA would report to the Secretary
of State on the actual performance of the sector. In addition
to indicating whether or not the milestone target had been met
to within the tolerance band the reporting would also include:
— a plot showing the overall sector performance
progress from 1990 to date;
— statistical analysis of the sector performance
within the tolerance band.
If the sector milestone had not been met, CIABATA would either:
— (a) present a case for why the sector as a
whole had not met the target, or
— (b) make available all company data including
the results of the benchmarking process to the Secretary of State
for Government to take a view on which companies within the sector
were poor performers.
(5) Transparency
The need for transparency is fully recognised and addressed
within this option. Data relating to companies' future plans is
very sensitive and will be kept confidential. However, in addition
to providing all company data to Government in the event that
the target is not met, CIA and CIABATA will continue to encourage
all participating companies to report publicly on its efficiency
as part of its annual environmental reporting. We already have
72 per cent of members reporting on a range of HSE issues, including
energy efficiency.
All companies who are covered by IPPC will have their reportable
performance data, in the public domain; this too, will include
energy efficiency.
Benefits of the "Option 1" sectoral approach
We have already made our case for why this approach results
in a higher overall energy efficiency target and this has been
acknowledged by Government. There are other important benefits
associated with this approach compared to a scheme where individual
companies all have their own energy efficiency targets:
— it promotes a sector wide energy efficiency culture
and ensures that it is everyone's interest to share best practices;
— it is based upon an approach of pro-active management
of sector performance;
— performance and progress of all participating
companies are continuously monitored rather than a retrospective
bi-annual check;
— companies' plans are regularly reviewed and updated
and provide a sound basis for comparing actual performance versus
using a target which, in later years, will have been a guesstimate
based on business assumptions which may be very different from
the reality
— the scheme would be inclusive of all eligible
companies irrespective of whether the company is exempt from the
levy and all CIA member companies would be actively encouraged
to join. A scheme which involves setting individual targets is
unlikely to be considered worthwhile for sites which are exempt
from the levy even though there may still be some energy efficiency
improvements to be made.
Summary
It is recognised that, to be effective, a sectoral agreement
requires access to good historical data and the resources to manage
this much more "hands on" and pro-active approach. However
our proposal is based on our experience in delivering improvement
in the overall sector's performance and clearly demonstrating
that an intra-sector benchmarking mechanism is effective in identifying
and managing poor performers. Where a sector is able to demonstrate
the capability to manage such a scheme, we firmly believe that
it will generate much more meaningful results and greater energy
efficiency improvement.
4 February 2000
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