7) c1 paul marsh

Carbon as a new commodity A UK perspective on how carbon is shaping investment decisions

Paul Marsh, HMM Canada Maria Manidaki, Andrew Heather, MM UK

Introduction

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Content • Background – Climate Change mitigation policy – Carbon as a tradable commodity – Carbon accounting

• UK Water sector case study – carbon in investment planning – Lessons – Final thoughts…

Photo source: http://www.interiorcontrol.co.uk/blog/tag/crc-energyefficiency-scheme/

Carbon – the latest commodity?

• Kyoto regulated entities can meet their obligations by reducing emissions and/or trading carbon credits • Emissions tax vs. trading – EU Emissions Trading Scheme (ETS) – Clean Development Mechanism (CDM) & Joint Implementation (JI) – Voluntary schemes (e.g. Japan, Australia, Canada, USA, etc)

Climate Change mitigation policy – the UK position • Climate Change Act 2008 – 34% reduction in emissions below 1990 levels by 2020 – 80% by 2050 – 5-year carbon budgets

• Carbon management policy instruments – Carbon tax (CCL) & Carbon trading system (EU ETS; CRC) 2008: 533 MtCO2e

UK Emissions of greenhouse gases, 1990-2009p Source: DECC, March 2010

2009p: 481 MtCO2e

Climate Change mitigation policy – the Canadian position • Carbon policy instruments

• Early ratification of Kyoto Protocol, 1998 – targets 6% between 19902012

– Carbon trading (Voluntary schemes); JI/CDM participation

– BUT abandonment in 2006

• Climate Change Accountability Bill – 80% reduction by 2050 – opposed in 2008

– US/Canada trading scheme from 2012?

– Carbon tax (e.g. Quebec 2007)

• Ontario’s Climate Change Action Plan Canada emissions of greenhouse gases, 1990-2007 Source: “Canada’s 2007 Greenhouse Gas Inventory – A Summary of Trends”, Environment Canada, 2009

Response Carbon footprinting fits in‌ Climate Change

Adapt

Modify or move assets

Mitigate

Quantify emissions Reduce emissions

‌ as a facilitator of mitigation measures

Case study – carbon footprinting in a UK water company

UK water industry – some facts • UK water industry emits about 4Mt CO2e pa: 1% UK emissions • There has been a focus on wastewater quality with energyintensive processes • Energy use has increased significantly – some say it’s doubled since 1990 • With current technology, adaptation to climate change might increase this still further • The water industry has not so far been ‘carbon constrained’

Carbon reduction in the UK water industry • Ofwat has committed water industry to playing its part – Carbon Reduction Commitment, 2010 • Carbon footprinting – to enable “external costs” to be “internalised” in investment planning – to aid in the selection of low carbon technologies for reducing industry carbon emissions

Carbon footprinting – what is it?

Carbon footprinting

Embodied carbon

Operational carbon

Whole life carbon

Cost estimation kgCO2e

kgCO2e/year

kgCO2e

£

Capital cost

£/year

Operating cost

£

Whole life cost

Carbon footprinting – the basics

Quantity

x

Emissions Factor

=

Carbon Footprint

Carbon footprinting – the main constraints • Defining boundaries – what to include

Quantity

• Estimating quantities – Often at an early stage in the project cycle – Supply chain not yet able to provide information

Emissions Factor

Carbon Footprint

•

Sourcing reliable emissions factors

•

Varying reporting requirements (Ofwat, CRC)

•

Comparability of results

•

How to use the answers?

Scope of carbon footprint models Construction Materials Buildings Roads Construction effort

Transport to site Disposal

Consequential emissions External transport Emissions arising from external costs

Process power Transport to site Process chemicals Disposal Direct gaseous emissions

Consequential emissions External transport Emissions arising from external costs

Operation

Key:

Included

Partially included

Excluded

Understand investment plan Investment options

Review preliminary appraisal sheets to identify the main components‌

Option 1 Abstraction

Size e.g. ML

Pumping

Size e.g. kWh

Storage

Size e.g. m3

Abstraction

Size e.g. ML

Pumping

Size e.g. kWh

Storage

Size e.g. m3

Option 2

etc‌

Abstraction

Pumping

Storage

Pipes

Identify capital components

Option 1

ML

kWh

m3

Ø,m

Option 2

ML

kWh

m3

Ø,m

Option 3

ML

kWh

m3

Ø,m

Option 4

ML

kWh

m3

Ø,m

Option 5

ML

kWh

m3

Ø,m

Option 6

ML

kWh

m3

Ø,m

etc…

… and build a database of asset types (or activity types) and sizes in the investment plan…

Identify size range of components Investment plan

Each asset type is broken down into its component parts

Abstraction Process civil structure

Size range

Mechanical and electrical Size range Building

Size range

etc …

Pumping Process civil structure

Size range

Mechanical and electrical Size range Building etc …

etc …

Size range

The size range of components used in the is identified A model is built for each component, to estimate the materials used for construction, and the power and chemicals used in operation…

Approach to CO2 model Example of construction model, based on part of a borehole abstraction and pumping station

Abstraction

e.g. 30MLd

Dimensions Volume of material

Mass of GWP of material material*

Process civil structure

GWP kgCO2e

Borehole casing Stainless steel

Diameter, length, mass per m

500kg

2.134**

1067

Precast concrete

Segment volume

500kg

0.215**

107.5

In-situ concrete

Volume m3

500kg

0.134**

67

500kg

1.720**

860

Headworks

Steel reinforcement bars Diameter, length, mass per m etc… etc… etc…

* In kgCO2e.kg-1 ** University of Bath inventory of carbon and energy

Total

2100 etc…

Method Capital (embodied) carbon

Every process has detailed models to derive the size:CO2e relationship.

120000

y = 1.7076x + 37153

100000 80000 60000 40000 20000 0 0

Operational carbon per annum

10000

20000

30000

40000

50000

7000000 6000000

y = 156.31x + 36352

5000000 4000000 3000000 2000000 1000000 0 0

10000

20000

30000

40000

50000

Models can include construction, capital maintenance, and process operational CO2e as required.

In this example the relationships are linear but in others they may be curves.

Scenario builder

Y=ax+bc

Y=ax

Results (1)

Results (2) Capital carbon estimate by process stage 6,000,000 Sludge Treatment

5,000,000

Tertiary Secondary

3,000,000

Primary

2,000,000 1,000,000 0 Sc en ar io A Sc en ar io B Sc en ar io C Sc en ar io D Sc en ar io E Sc en ar io F Sc en ar io G Sc en ar io H Sc en ar io I Sc en ar io J

CO2e kg

4,000,000

Scenario

The graph shows capital (embodied) carbon for each scenario.

But embodied carbon is not the whole story‌

Results (3) 40

…whole-life projections show how energy consumption can quickly dominate the CO2 profile.

Scenario A Scenario B Scenario C Scenario D Scenario E

35

30

Scenario G

25

Scenario H

G

Scenario I

20

Scenario J

Embodied carbon

C

15

Accumulation of operating carbon

10

G

5

0 0

1

2

3

4

5

6

7

8

9

10

11

Time (Years)

12

13

14

15

16

17

18

19

20

1000 Tonne CO2

C

Scenario F

Carbon footprinting in UK water industry – lessons learnt

Main lessons (1)

• Current low shadow and traded price of carbon means that carbon comes secondary to cost • Therefore, it is not yet shaping investment decisions • But…cap on emissions through carbon trading may reverse this

Main lessons (2)

• Carbon footprinting happened in the UK water industry 2 years before Carbon Trading Scheme implemented • Carbon footprinting was mainstreamed without sector specific targets (only national targets) Photo source: http://ec.europa.eu/energy/intelligent/index_en.html

Main lessons (3) 10000 -1 kgCO2.hr

1000 1 MWh: Equivalent CO2e to driving 3680km… in one hour

100 10 1 0.1 1

10

100 1000 Power kWh

@0.523kgCO2e.kWh-1 and 0.142kgCO2e.km-1

10000

• Operational carbon gives focus on energy saving activity and reduce energy bills • Embodied carbon gives focus on resources used and can promote resource efficiency and recovery

Carbon footprinting in Canada

Carbon Foot printing in Canada • Carbon Calculators – 1 tonne challenge • Heuristic associative methods aimed at consumers

• CSA standard CAN/CSA-ISO 14064-2:06 (ISO 140642:2006) – Project level quantification

• CSA Training – GHG-IQ, GHG Inventory Quantifier – GHG-V, GHG Verifier – Mott MacDonald Verifier under ISO 14064

Municipal Practice

Inputs Gas Electricity Heat

ÎŁ inputs x GHG conv. factor = CO2e annual footprint

Not equipment based

Pump Life Cycle Costs

Chart courtesy of Peel Region

Anticipating GHG tradeoffs • 25 year old WWTP – Near capacity – Capital upgrade planned

• MOE order for dechlorination – Move to UV?

Ontario Power Authority’s (OPA) Renewable Energy Standard Offer Program (REOSP) for each of the two 10MW solar facilities. Together the two facilities represent an investment of over $100 million dollars

• Higher electricity demand – Renewable Energy supply?

GHGs and Water/Wastewater capital investment planning • Municipalities

• Suppliers and Consultants

– Councillors want to know about GHGs for their municipality

– Can meet requirements for GHG reporting

– General recognition that reductions are good.

– Financial impact will not be significant

– No clear understanding of the challenge to meet significant targets.

– Energy element very significant cost.

Final thoughts on carbon footprinting…

• Organization credibility – Moving towards real change.

• Cost-effective to do • Investment planning can promote energy reduction • new revenue streams: – cap-and-trade carbon credits

Canadian Carbon Opportunities • Achieving Energy and Carbon reduction strategies • Carbon footprinting, trading and monetisation • Clean Technologies – Low carbon and renewable energy technologies

• Climate Change adaptation and mitigation strategies

Maria Manidaki

Andrew Heather

Paul Marsh

Cambridge, UK

Cambridge, UK

Ontario, Canada

maria.manidaki@mottmac.com

andrew.heather@mottmac.com paul.marsh@hatchmott.com

Tel.: +44 (0) 1223 463 513

Tel.: +44 (0) 1223 463 498

www.hatchmott.com www.mottmac.com

Tel.: +1 905-940-5811