Carbon Cost Issue ADBA DECC Fundamental basis Subsidy cost-effectiveness Societal cost-effectiveness

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1 Anaerobic Digestion and Bioresources Association Renewable Energy Association Department of Energy & Climate Change 3 Whitehall Place, London SW1A 2AW T: +44 (0) E: Katie.Halter@decc.gsi.gov.uk 13 th June 2016 Dear Matt, Kiara and Frank RE: Carbon Cost Effectiveness of Biomethane in the Renewable Heat Incentive Thank you for meeting myself, Kenny, Andy, Henry and Phil on 26 th May to discuss the carbon cost effectiveness work. In the meeting we set out the key differences we have identified between the ADBA response to the latest RHI consultation, and the DECC carbon cost effectiveness work set out in the consultation Impact Assessment. We thought it would be helpful to set out in this letter the issues that we covered in our meeting. By way of a general response to your questions, the Consultation is a means of presenting the considerations underlying our policy proposals; and we therefore welcome your questions on our carbon cost-effectiveness analysis (which helps us to build confidence therein ahead of finalising our policy). We are in the process of considering the evidence that was submitted as part of the consultation, and we intend for the Government response to set out Ministers decisions on the policy in light of the responses. We have identified a number of differences in the approach underpinning DECC s and ADBA s carbon cost-effectiveness estimates. The differences set out below are the aspects which we believe are likely to have been the most sensitive to the outcome. Table of key differences between ADBA and DECC carbon cost approaches: Carbon Cost Issue ADBA DECC Fundamental basis Subsidy cost-effectiveness Societal cost-effectiveness AD emissions Feedstock emissions Used actual GHG emission values for individual plants/ feedstocks. Crop upstream emissions from cultivation differing for different crops Modelling took an approach whereby emissions and costs used typical and average values. We assumed emissions, for all feedstock types, are proportional to the emissions limit as set by the sustainability criteria. Methane leakage Not taken into account Taken into account (on a sensitivity basis only) The numerically most significant item is the upstream emissions for food waste and manures. As a sensitivity - for our optimistic scenario - we assumed feedstock emissions were 20% below the sustainability limit.

2 I hope the following helps to shed some light on the differences in approach, and that the Annex to this letter helps to address the specific questions that you have posed since the publication of the consultation. Yours sincerely, Katie Halter

3 ANNEX RESPONSE TO ADBA/ REA QUESTIONS 1. How much of the crop feedstocks is maize (if this is known)? Para 185 (page 51) of the Impact Assessment notes 25 agricultural plants and 12 waste food plants as of November Of the approximately two-thirds of the plants which we expect are using some food crops, our assumption is that the most feedstock is maize. We expect to have a better insight into the crops used once the first sustainability audits have been submitted to Ofgem. The weighted average of a mixture of crops for the 2014 biomethane tariff review was used for the Carbon Cost Effectiveness work set out in the initial impact assessment. 2. Data presented in the Impact Assessment is only for maize, The Impact Assessment (IA) treated all crops identically so far as emissions were concerned. We assumed emissions from crop-based AD irrespective of the crop-type would be at the emissions limit permitted under the sustainability criteria (or just below this level in our optimistic case, again by the same degree for all crop types). 3. Can DECC present more detail behind the cost effectiveness calculation of between 350 and 600 /tco2e? The information set out in the impact assessment sets out the assumptions which are most sensitive to the outcome of the carbon cost effectiveness calculator. Further to this, we hope that the meeting provided a sufficient level of detail. 4. Is there further evidence on the carbon cost effectiveness of other technologies? We believe that whilst the outputs may change with broader technologies, the value of the carbon saved of waste relative to non-waste feedstocks will not change. We will consider whether it is appropriate to expand the work that has been undertaken, based on the responses to the consultation. 5. Is the carbon abatement role of digestate taken into account in the graphs on pages of the IA? Yes in all cases, for food, crops and wastes. 6. No source for the 2.5% methane leakage figure. What assumptions have been made here? How many plants measured and how were they measured? Methane leakage is represented as a parameter for sensitivity analysis only, and does not represent actual measurements. Methane leakage is included so that we can consider whether leakage is likely to be a key issue for future policy considerations. We are currently scoping an R&D project on methane leakage and will be happy to engage with you as that work develops. 7. Data presented in the Impact Assessment is only for biomethane, not biogas heat. Have the same conclusions being applied to biogas heat? The analysis presented in the Consultation Stage Impact Assessment applies only to biomethane injected directly into the grid. For biogas (i.e. off-grid heat), the following factors

4 would affect the estimate of carbon cost-effectiveness, i.e. mean it would differ from those presented in the Consultation Stage Impact Assessment: (a) (b) The counterfactual process would, at least in some cases, be different. In line with standard DECC assumptions, biomethane injected directly into the grid is assumed to displace imported Qatari LNG; whereas biogas for off-grid heat would be displacing potentially various different sources of heat in the counterfactual. This would affect the estimated emissions savings, calculated as the difference in counterfactual emissions and reference case (i.e. AD) emissions. Biogas may be used to produce power as well as heat. This would affect the assumed counterfactual (see above point) and would mean potentially taking account of additional revenue streams in the calculation of carbon cost-effectiveness. Importantly, under our current analytical approach, the carbon cost-effectiveness merit order of the different feedstocks would not differ for a set of estimates of the carbon cost-effectiveness of (off-grid) biogas. We will consider whether further work is needed to determine the carbon cost effectiveness of biogas in the final government response to the consultation. 8. Table C4, page 62: what are the assumptions behind the scheme deployment figures shown in this table for biogas? In particular how has the split between different scales been derived? (footnote states Deployment of large biogas particularly depends on the support offered through the Feed in tariff, but this is very much the case for medium and small scale too, which is why these two scale bands are dramatically affected by the recent changes to the FIT scheme (caps and degression). The deployment estimates, using standard plant sizes, were used to describe the potential that could be reached if all of the budget was spent. We are considering in more detail the potential constraints that the biogas and biomethane industry are under, including potential feedstock constraints and wider policy effects. We will use evidence submitted as part of the consultation, to consider whether the estimates of biomethane and biogas deployment set out in the initial impact assessment should change. Any changes will be set out in the final impact assessment which accompanies the Government response. We used reference plants that were appropriate for biomethane. Plants of 1MWth and 6MWth are what we consider to be a small and typical biomethane plants, based on current accredited schemes. 9. No complete table of assumptions and evidence bases, e.g. Table A2.17 (page 95 of the Impact Assessment) lists some Biomethane Cost and Performance Assumptions but not a full list. The analysis performed within the Impact Assessment is underpinned by the information gathered from the published 2014 Biomethane Tariff Review, the majority of which remains unchanged. Table A2.17 highlights the only changes made to those assumptions, while also aiming to provide an amount of information that is consistent with the presentation of other technologies within the Impact Assessment. 10. Missing reference for Defra report in third bullet point (IA page 97). Apologies for the missing link, the referenced study can be found here:

5 11. Unpublished report from University of Manchester (page 97) We hope to be able to publish the Manchester report shortly. 12. Assumptions on emissions described on pages 96 and 97 are only for waste feedstocks. What are the assumptions for the lifecycle emissions for maize? We assumed emissions for all feedstock types are proportional to the emissions limit as set by the sustainability criteria. 13. What are the key factors determining the different cost effectiveness of large and small plants (> 1MWth and < 1 MWth respectively). The primary assumption behind the differing cost effectiveness of small and large plants is the economies of scale experienced by the larger plants. This results in larger plants experiencing smaller per unit costs of CAPEX, OPEX and feedstock. These cost assumptions have been based on the 2014 Biomethane Tariff Review. These were the input assumptions to which the outputs were most sensitive. Impacts and options 14. No mention of farming market/rural economy/landscape restoration/soil quality on page 54 of the Impact Assessment; We are considering the consultation responses that raised these issues with Defra. 15. Are there any figures for biomethane generation that will not come forward as a result of this review and restrictions on crops? It was the view within the consultation that there would not be a change in the number of plants coming forward with the introductions of restrictions, but rather just a change in the type of plants coming forward. It is for this reason that no figures for a reduction in biomethane generation was produced. We are considering the evidence put forward in response to the consultation to determine likely deployment for the final impact assessment.