Climate Change Agreements Guidance Note 2 What is eligible to be in a CCA?

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1 Climate Change Agreements Guidance Note 2 What is eligible to be in a CCA? The objective of this guidance note is to explain what is allowed to be included in a CCA and how to apply the 70/30 rule. Introduction Eligibility for a CCA is determined at a site, also known as a facility, level. There are three steps to undertake to identify the extent of a facility s eligibility for a CCA: 1) You must identify what activities on site can be classed as being eligible for a CCA; 2) You need to identify what other activities at the site could be covered by the CCA; 3) You must apply the 70/30 rule to identify all the energy that will be included in the CCA. The steps listed here are the same whether your site is in or not in EU ETS. Step 1: Identifying the Eligible Process The eligibility criteria for the Cold Storage sector (CSDF) CCA is: At an installation (which must be a building where the predominant business activity is commercial temperature controlled storage or product freezing) or site upon which there is such an installation where (a) products are cooled or frozen for the purposes of (i) storing them under controlled temperatures below ambient levels; or (ii) producing ice; or (b) products are stored under controlled temperatures below ambient levels, cooling and freezing products and all processes and activities involved in controlling temperatures below ambient levels. This is a quite broad definition and it includes all food and drink processing activities. The word processing is important the CCA site needs to actually be processing a food product a site that carries out no processing will not be eligible; examples include washing and cutting only will not be deemed as eligible, only packaging food and drink products will not be eligible. It is important to note that there are various food and drink CCAs apart from the FDF CCA. Operations such as large breweries, dairy processors or red meat / poultry processors may need to apply to a different CCA. Also stand alone cold stores are covered by a separate CCA. Please see Appendix A of Guidance Note 1 for a full list of sectors that have a CCA and their eligibility criteria. Step 2: Identify other activities that could be included Energy used at a CCA site falls into one of 3 groups: a) Energy used in the eligible process itself, such as XXX. This energy is eligible for a CCA. GN2, Version 2, Oct 14 Page 1 of 5

2 b) Energy used in a Directly Associated Activity (DAA). This energy is also eligible for a CCA. A DAA is defined as an activity that supports the eligible process, without which the main process could not operate. This includes systems such as boilers, refrigeration plants and air compressors. It also includes equipment such as materials handling facilities transporting raw materials or processed products and lighting / HVAC systems in the main production areas. It is important to include all DAA energy within your assessment of eligible energy as it often makes up a significant proportion of the total in a food processing plant. c) Energy that is ineligible. This is any energy use for parts of the site that operate independently from the main eligible process. For example offices, workshops, ambient warehousing. It could also include a completely unrelated industrial activity which does not fall within the definition of an energy intensive eligible process. Step 3: Applying the 70/30 Rule During the process of applying for a CCA you need to provide information that shows the split of site energy use between eligible energy (the eligible process plus DAAs) and ineligible energy and then apply the 70/30 rule. You must apply the 70/30 rule on your base year when you join the CCA. You are also required to undertake an annual assessment of the 70/30 rule whilst the CCA is in place. If you are audited by the Environment Agency or HM Revenue & Customs they will ask to see your 70/30 assessments. The 70/30 rule is intended to simplify the administration of CCAs by allowing some ineligible energy to be included in the CCA as long as it is less than 70% of the total. If 70% or more of a site s primary energy consumption is eligible (the eligible process plus DAAs) then the whole site can be included in the CCA. This is known as passing the 70/30 rule and illustrated in the diagram below. GN2, Version 2, Oct 14 Page 2 of 5

3 Almost all sites in the FDF CCA pass the 70/30 rule. This is very beneficial as it maximises the amount of energy that gets the CCL discount and it simplifies the annual reporting of energy use as this is based on the total site consumption. It is worth noting that in old CCAs there was a much less generous 90/10 rule. Even with that rule, the vast majority of FDF sites were able to show that >90% of their energy was eligible. With the new 70/30 rule only a few exceptional food processing sites fail the rule. You are allowed to prove compliance with the 70/30 rule with appropriate measurements and calculations that show the split of energy use between the 3 energy use groups described above. You can make use of sub-metered data where this is available, but this is not essential. Various calculation methods can be used to establish an approximate split of energy use (e.g. estimating ineligible energy). As in most cases the eligible use is much greater than 70%, it is unlikely that reasonable calculations will be challenged (although the calculations will probably be checked during a random audit. If you are very close to the 70% boundary (e.g. your estimates show 71% is eligible) it is more likely that your 70/30 evidence will be scrutinised. If less than 70% of a site s primary energy consumption is eligible (the eligible process plus DAAs) then the whole site cannot be included in the CCA. This is known as failing the 70/30 rule and illustrated in the diagram below. Because a site that passes the 70/30 rule is allowed to include 30% of ineligible energy within the CCA; which is equivalent to 3/7ths of the eligible energy, then to ensure consistency, a site that fails the 70/30 rule can also include an additional 3/7ths of their eligible energy use within the CCA. For example, if a site has 40% of energy use that it eligible, a further 17% of site energy from the ineligible equipment can be included (i.e. 3/7ths of 40%). You will need to accurately measure the eligible (eligible plus DAAs) and ineligible energy; this will require sub-meters to be installed. To include this extra 3/7ths, the ineligible processes must be identified at the start of the CCA and must be sub-metered. A site that fails the 70/30 rule cannot GN2, Version 2, Oct 14 Page 3 of 5

4 join the CCA until at least 12 months of sub-metered data is available to accurately establish the eligible and non-eligible energy use. Sub-metering requirements If a site fails the 70/30 rule then it must have sub-metering in place to measure the energy use of the eligible areas (i.e. the eligible process plus the directly associated activities) and any extra claimed under the 3/7ths rule. In the old CCAs, a site that joined the CCA had a period of six months to install sub-metering if it was required. That is not the case in the new CCAs. Any site that fails the 70/30 rule must be in a position to submit 12 months of sub-metered data as part of their application and their on-going reporting requirements. The diagrams below illustrate what sub-metering may be required at a site that fails the 70/30 rule. Calculating Primary Energy The 70/30 rule is applied using primary energy. Delivered energy is the actual amount of energy delivered to a site. It is usually the quantity of energy in, say, kwh shown on your energy invoices. Primary energy takes into account the energy used to generate and transmit energy to your site. The table below lists all the factors to convert from energy delivered to the site to the primary energy source burnt to generate it. In the case of natural gas used on site in equipment such as boilers or ovens, the fuel is burnt on site and hence the factor is 1. For electricity bought in from the GN2, Version 2, Oct 14 Page 4 of 5

5 grid, it was generated at a power station (or other generation facility) and that power station and the associated networks to transport the electricity have inefficiencies. The factor of 2.6 is applied to convert the energy in the electricity delivered to site back into the fuel burnt in the power station (the factor is a national average taking into account all generation sources). Energy source To Give Primary Energy: Multiply Delivered Energy (in kwh) by Electricity (grid) 2.6 Electricity (3 rd party) Please contact CCA Help Line Natural Gas 1.0 Gas Oil 1.0 Light Fuel Oil 1.0 Medium Fuel Oil 1.0 Heavy Fuel Oil 1.0 Propane 1.0 Coal 1.0 Renewable fuels 1.0 Energy substitutes: Liquid Nitrogen 2.6 Liquid CO Steam Please contact CCA Help Line CCA Help Line Tel: fsdf@cclevy.com GN2, Version 2, Oct 14 Page 5 of 5