pwc

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pwc

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Preparing for the UK emissions trading scheme

• Baselines, monitoring, reporting verification
• Melissa Carrington, Global Sustainability
  Solutions

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Agenda

• Why join? - financial materiality vs corporate
  social responsibility
• Overview of UK emissions trading scheme
• Emissions reporting
• Verification

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Why join?

• Expected value of emissions reductions and
  financial incentive
• Corporate social responsibility
• Getting value out of current environmental
  management activities
• Preparation for mandatory carbon constraints

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UK Emissions Trading Scheme
Market

• Others
• Brokers
• NGOs
• Governments

Gateway
Allowances

• Direct Entry Participants
• Cap trade
• Auction to allocate targets and incentive
• Emissions must match allowances held

• Climate Change Agreements
• Baseline credit (at start)
• Relative and absolute targets
• Trade to meet targets

• Projects
• Approved projects
• Tradable credits

Approval
Verification
Reporting
Emissions Trading Authority
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UK Emissions Trading SchemeTimetable for Entry
First milestone year ends (or earlier)
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UK Emissions Trading SchemePreparation for entry

• Direct Entry
• Submit source list sectors
• Agree reporting Protocols
• DEFRA approval
• Compile baseline emissions
• Verification
• Registration documentation
• Future emissions profile bid preparation
• Auction
• Allowance allocation
• Trading
• Annual emissions verification

• CCA entry
• Open Registry Account
• Allowance purchase
• CCA data submissions
• Documented reporting procedures
• Milestone year data emissions/energy and output
• Carbon trading certificates
• Verification
• DEFRA milestone assessment for CCL purposes
• Allowance allocation
• Allowance sale

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Emissions reporting guidance in UK scheme

• Direct entrants
• Guidelines for the measurement and reporting of
  emissions in the UKETS DEFRA, August 2000
• Covers CO2 emissions from combustion and process
  emissions (for a few important sectors)
• Process CO2 emissions not covered by protocol and
  non-CO2 gases submit own protocol for approval
• General principles
• Management control
• Direct GHG emissions from site plus indirect
  emissions from electricity, heat and steam
  imports
• CCA participants
• Guidelines for the measurement and reporting of
  emissions in the UKETS DEFRA, August 2001
• Converting targets to CO2 Technical Guidance
  notes NA(99)30, NA(00)07.
• Umbrella and underlying agreement provisions
• Guidance notes CCA (01) 03

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Best practice reporting principles or how to
keep your verifiers happy

• Completeness
• Include all eligible sources, account for
  leakage effects
• Consistency
• Consistent (DEFRA approved) reporting protocols,
  methodologies and measurement processes applied
  from year to year
• Reliability
• Stated emissions should be free from material
  misstatement and bias (quantify uncertainties in
  measurement processes and identify any potential
  sources of bias)
• Transparency
• Provide an audit trail document decisions,
  data gathering roles and responsibilities,
  methodologies, data sources, measurement error,
  changes in any of these, correspondence with
  DEFRA/ sector Association

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Verification requirements

• Verification required for baseline emissions and
  annual emissions (at end of each compliance
  period) for direct entrants
• Can bid for financial incentive without
  verification, provided have started verification
  process, but at own risk and trading permitted
  only when baseline verified
• Verification required for CCA participants who
  wish to sell allowances (guidance under
  development, may involve sector level review and
  site sampling)
• Verification guidance for both types combines
  financial environmental auditing principles
• Different process to ordinary verification for
  corporate reports however, for CCA purposes
  reliance may be placed on EMAS audit or financial
  audit where relevant
• Materiality level set at 5 - also qualitative
  criteria applied
• Accreditation required for verifiers by UK
  Accreditation Service (UKAS)

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Preparing for verification

• Tips for keeping sane during the process
• Pre-verification internal audit i.e walk
  through the process and documentation yourself
• Document all your decisions
• Keep copies of correspondence with DEFRA
• Allow time for risk management and legal issues
  to be assessed
• Allow time for senior management sign-off
• Expect the process to be iterative