Revised ETS must give NHS a ‘fair deal’
October 2008
Tracy Cook, the NHS European Office’s European policy manager (pictured), examines the European Emissions Trading Scheme (the ETS) and its implications for the NHS, and focuses on some of the key concerns expressed by NHS estates and facilities managers during recent consultations as proposed revisions to the scheme are discussed at a national ministerial and European Parliament level.
European environmental legislation is the origin of a vast amount of the day-to-day regulatory requirements with which NHS estates and facilities managers need to ensure compliance. Areas covered range from waste management to public procurement, and from the safe disposal of electrical equipment to energy performance in buildings. There are a number of environmental issues currently on the European agenda which will have direct implications for the NHS, such as the proposed revisions of the Integrated Pollution and Control Directive, the Energy Performance in Buildings Directive, and the European Emissions Trading Scheme (the ETS).
The European Emissions Trading Scheme (ETS) is particularly topical at the moment because national ministers and Members of the European Parliament are currently discussing a proposed revision of the scheme which is due to be agreed by the year end. The recently established NHS European Office represents NHS organisations in England to European policy-makers and ensures that the views of the NHS are considered when EU policies and legislation such as this are shaped. It provides a key instrument to influence environmental legislation relevant to the NHS at an early stage so that it strikes the right balance between a committed approach to sustainable environmental policies and one which takes account of what is feasible, cost-effective and realistically achievable without compromising high levels of patient care.
The proposed revision of the ETS could have quite significant new cost and administrative implications for 71 NHS hospitals currently subject to the scheme (see panel page 61), and in view of this, the NHS European Office has consulted senior estates managers on their experience with the scheme to date and their views on the way forward. This article takes a closer look at the scheme, what it means for the NHS organisations affected, and how some of the key concerns expressed by NHS estates and facilities managers are being taken on board at a European level.
What is the ETS and how does it work?
Established in 1995 to help reduce greenhouse gas emissions in the EU, the ETS is a market-based tool which works on a cap and trade basis. Under the current rules, an emissions cap is set for each installation covered by the scheme, and emission “allowances” are allocated free of charge up to that cap.
A key feature of the ETS is that it gives participants the flexibility to decide whether it is more cost-effective to invest in new technologies to reduce their emissions or, in the event that they exceed their cap, to buy additional emissions allowances on the carbon market as required.
The NHS hospitals covered by the scheme tend to be large university hospitals and have combustion installations exceeding 20 MW thermal rated input. Other types of activities covered include production and processing of ferrous metals, the mineral industry and the pulp and paper industries.
Why is the legislation being revised?
The current revision of the ETS is meant to strengthen, expand and improve the functioning of the scheme so that it delivers on the commitment made by the EU Governments at their March 2007 Summit to reduce greenhouse gas emissions by 20 to 30 per cent compared with 1990 levels. Notably, key changes will address the shortcomings seen in the first phase of the ETS, such as over-allocation of allowances, and the resulting low carbon prices.
What key changes are being proposed?
Among the proposed changes are an EU-wide cap on allowances, harmonised measures on free allocation, and improved monitoring, reporting, and verification requirements. In addition, over the period 2013-2020 there will be a gradual move towards a requirement to buy all emission allowances.
Of particular importance to the NHS, which represents less than half a per cent of all UK ETS emissions, is the Commission’s proposal for an exemption for small emitters. The proposed exemption would cover installations that have emissions under 10,000 tonnes C02, and a thermal rated input under 25 MW, and which are subject to equivalent national carbon reduction measures.
What the review means for the NHS
The key message to emerge from the NHS European Office’s consultation is that the NHS is fully committed to the objectives of the European Commission’s proposed climate and energy policies and recognises the important role they have to play in helping tackle climate change. However, there are number of concerns about the impact of the European Emissions Trading Scheme on the healthcare sector. Key among these are the excessive and disproportionate costs of the ETS, the lack of recognition of the non-commercial nature of most healthcare in the UK, and the failure of the proposed legislation to address a number of technical issues, such as the need for significant standby capacity in hospitals. Moreover, while the proposed small emitter exemption is a welcome development, it still does not go far enough to allow the majority of NHS Trusts to opt for more cost-effective national carbon reduction measures. These various issues are discussed in more detail here.
Excessive and disproportionate costs
The proposed new scheme would entail significant new costs and administration for the NHS. To date, the major concern for NHS Trusts has been excessive administrative costs linked to the scheme’s monitoring and reporting requirements. Compliance costs have been less of an issue for most Trusts, as the price of carbon has been particularly low. However, compliance costs will increase dramatically, with the introduction of new measures ensuring a strong and stable carbon price and with the requirement to purchase all emissions allowances by 2020. With full implementation of the proposed ETS revision, the 71 NHS hospitals currently subject to the scheme will incur new compliance and administrative costs estimated at over £18 million annually.
These compliance costs are estimates based on current carbon prices and the 2007 verified emissions of the hospitals currently subject to the scheme. Moreover, increases in electricity prices resulting from the scheme are estimated at over £64 million annually for the NHS. Considering that some EU Governments adamantly argue that current carbon prices are likely to sky rocket and electricity costs to rise by 100%, and despite the fact that we can really only speculate on the price of carbon at this stage, these rather conservative estimates of costs for the NHS should still be cause for some concern.
Moreover, administrative costs will remain an issue for the NHS, and this is recognised by the European Commission’s impact assessment, which shows that small emitters like hospitals face disproportionate administrative costs vis-a-vis major industrial emitters. In fact, the administrative costs of the ETS can be up to 300 times higher for small emitters like hospitals and universities when compared to major industrial emitters.
This finding clearly reflects the experience of the NHS, which does not have the same in-house expertise to compete on the international carbon market as major industrial emitters. Moreover, while the ETS has raised some awareness of the need to improve energy efficiency, the experience reported by many Trusts is that the cost and administrative burdens of the scheme have often diverted resources away from the actual goal of improving energy efficiency.
Inability to pass on costs
Unlike small- and medium-sized enterprises, the NHS cannot take commercial decisions about the services that it offers based on profit margins, nor can it pass on any additional costs resulting from steps to comply with the ETS to its “consumers”. Rather, the NHS is required to deliver healthcare to the public whether it is profitable to do so or not, and this must be done with limited public funds.
Capacity threshold
Although the proposed small emitters exemption is welcome, as is the more formal recognition of the 3 MW deminimis threshold rule, the 25 MW capacity threshold and the related aggregation rules still do not recognise the need for significant standby generator and boiler capacity in hospitals. Standby capacity in hospitals is vital to ensure the continuity of patient care in the event of a power failure or other incident. In addition to their emergency generators, hospitals therefore often have double the boiler capacity than they would actually use. In order to keep a boiler in good running condition it is necessary to rotate the lead and standby boilers. If hospitals rely on only one lead boiler all year round, often the standby boiler will not operate properly when required. While hospitals need standby capacity which is well maintained and ready for service, it should be noted that these combustion units are rarely ever used to their full capacity.
The current Commission proposal would lead to a situation where hospitals could be subject to the scheme for their “potential” to emit rather than their actual emissions. We therefore fully support the UK Government proposal to delete the capacity threshold and base inclusion in the ETS entirely on actual emissions.
Emissions threshold
Although the Commission has chosen to exclude the “smallest of the small” by setting the emissions threshold at 10,000 tonnes CO2e, the impact assessment also acknowledges that allowing installations with emissions under 25,000 tonnes CO2e to opt out of the ETS is still a cost-effective option. Almost half the NHS Trusts currently in the scheme would not be covered by the small emitter exemption because they surpass the proposed C02 emissions threshold. Yet NHS hospitals account for less than half a per cent of the total UK ETS emissions.
Provided there is a requirement for equivalent national carbon reduction measures, we believe that allowing these hospitals to opt out of the ETS takes account of their specific needs as small emitters, and allows them to make the most cost-effective choices without compromising the environmental integrity of the ETS.
Numerous amendments have been put forward in the European Parliament which support an emissions threshold of 25,000 tonnes C02e. This is a costeffective option which will help alleviate the disproportionate administrative burden on small emitters.
Treatment of combined heat and power (CHP)
Under the proposed ETS text, any electricity produced through NHS CHP plants will not benefit from free allocation during the transition period between 2013 and 2020. NHS hospitals which have invested in low carbon technologies as part of an effort to meet the Government’s CHP target of 10,000 MWe installed CHP capacity by 2010 would, in effect, be treated like a large electricity producers, and incur additional costs for their CHP operations from 2013.
Moreover, different CHP set types and configurations will produce different heat/electricity ratios. Some Trusts are concerned that trying to account for each separately will be a significant problem requiring complex and expensive metering. We do not agree with the European Commission’s proposal that all on-site production of electricity should face 100% auctioning from 2013. We believe that this approach would be a major disincentive to investment in CHP, and would unfairly penalise hospitals which have already invested in this low carbon technology. Proposals are currently being considered in the European Parliament which would amend the legislation to allow electricity produced from co-generation which is used for “auto consumption” (i.e. not sold to the national grid) to continue benefiting from free allocation until 2020.
New entrants reserve (NER)
The Commission has proposed the introduction of an EU-wide new NER with a 5% reserve of allowances set aside for this purpose. While this may seem a considerable amount, it could be acceptable provided that the current definition of “new entrant”, which allows installations with updated permits to draw free allocation from the reserve, is maintained.
The NHS is particularly concerned that the Commission has changed the definition of “new entrant” to cover new installations only. This means that, from 2011, any hospital that undertakes a major redevelopment and relies on the existing plant or equipment will have to consider and pay the full costs of any emissions from these developments from 2013. A number of NHS hospitals are currently undergoing major redevelopments to improve patient care which will only become operational after 2011. These hospitals have not been able to factor carbon costs into their initial investment decisions.
In addition, new CHP plants should be allowed to benefit from the free allocation for both heat and electricity during the 2013-2020 transition period as proposed by a number of Members of the European Parliament.
Use of auctioning revenue
It is expected that revenues from the sale of emissions allowances will generate £1.6 billion of revenue for the Government during the 2008-2012 period. These revenues will increase substantially with the progressive phasing out of free allocation starting in 2013.
It is clear that the UK Government position is that there should not be a system of hypothecation or earmarking of auctioning revenues. However, this is an opportunity for the NHS to point out that we are on the frontline of responding to climatic emergencies like heatwaves and floods, and additional strain is foreseen from an expected rise in climate-related disease (cardio-respiratory disease, skin cancer, mental health issues, etc). In order to respond effectively to these new challenges and improve its own carbon footprint, the health sector will need additional support and resources. In the event of an agreement reached at EU level which leads to a commitment to spend a certain amount of the ETS revenues on tackling climate change, we believe consideration should be given to the specific mitigation and adaptation needs of the healthcare sector.
What happens next?
Over the past eight months the NHS European Office has been working closely with NHS Trusts to develop the points discussed in this article in order to put forward a coherent NHS position to the relevant UK Government departments and key EU policymakers. The majority of the suggested changes which we have put forward on behalf of the NHS have been taken up by MEPs and are currently being considered in the European Parliament. Perhaps upon further reflection of the issues involved, the NHS as a whole might be convinced to “go green”, and support the proposal put forward by leading members of the UK Greens in the European Parliament. This would exempt hospitals from the ETS and have the effect of making the 71 NHS hospitals subject to the EU Burden Sharing Directive instead. This requires national governments to put in place carbon reduction measures for the non EU-ETS sector in order to meet national reduction targets. In the UK, this would mean inclusion in the Carbon Reduction Commitment, which will already cover the majority of the NHS when it comes into force in 2010. The implications of the CRC and the responsibilities of the NHS vis-a-vis this carbon reduction tool should be the subject of a separate, in-depth consultation. Similar proposals have been put forward by leading Members of the European Parliament from the Conservative and Socialist groups that would allow hospitals to opt for more cost-effective national carbon reduction measures. Failing this, a number of parliamentary amendments addressing technical issues of particular concern to the NHS have been put forward by MEPs, notably related to thresholds and the treatment of combined heat and power.
A “one-fits-all” approach to reduce carbon emissions is not appropriate, and the specificities of the sectors concerned should be taken into account in the development of any effective and credible carbon reduction strategy. And, while some might still suggest that the NHS could benefit from a bit of the “stick” to help it reduce its purportedly massive carbon footprint, fortunately there is some recognition across the political spectrum in the European Parliament that in the healthcare sector the ETS is more of a bludgeon. This bodes well for the NHS, as these politicians will be jointly deciding the future of the ETS with national ministers over the next few months.
The NHS European Office
The NHS European Office has been established to represent NHS organisations in England to EU decisionmakers.
The office is funded by the Strategic Health Authorities, and is part of the NHS Confederation. EU policy and legislation have an increasing impact on the NHS as a provider and commissioner of services, as a business, and as a major employer in the EU. Our work includes:
- Monitoring EU developments which have an impact on the NHS.
- Informing NHS organisations of EU affairs.
- Promoting the priorities and interests of the NHS to European institutions.
- Advising NHS organisations of EU funding opportunities.
NHS Trusts covered by the ETS
Eastern Region
- Basildon and Thurrock University Hospitals NHS Foundation Trust.
- Cambridge University Hospitals NHS Foundation Trust.
- Barking, Havering and Redbridge Hospitals NHS Trust.
East Midlands
- Nottingham University Hospitals NHS Trust.
- United Lincolnshire Hospitals NHS Trust.
- University Hospitals of Leicester NHS Trust.
London
- Great Ormond Street Hospital for Children NHS Trust.
- Imperial College Healthcare NHS Trust.
- Northwest London Hospitals NHS Trust.
- Chelsea and Westminster Hospital NHS Foundation Trust.
- Guys and St Thomas’ Hospital NHS Foundation Trust.
- St Georges Healthcare NHS Trust.
- Barts and The London NHS Trust.
- Royal Free Hampstead NHS Trust.
North East
- Newcastle Upon Tyne Hospitals NHS Foundation Trust.
- County Durham and Darlington Hospitals NHS Foundation Trust.
- Gateshead Health NHS Foundation Trust.
- South Tees Hospitals NHS Trust.
North West
- Bolton Hospitals NHS Trust.
- Salford Royal Hospitals NHS Foundation Trust.
- East Lancashire Hospitals NHS Trust.
- The Pennine Acute Hospitals NHS Trust.
- Central Manchester and Manchester Children’s University Hospital NHS Trust.
- Royal Liverpool and Broadgreen University Hospitals NHS Trust.
- Aintree University Hospitals NHS Foundation Trust.
South East
- Epsom and St. Helier Hospital University Hospitals NHS Trust.
- Southampton University Hospitals NHS Trust.
- Medway NHS Foundation Trust.
- John Radcliffe Hospitals NHS Trust.
- Kingston Hospital NHS Trust.
- East Sussex Hospitals NHS Trust.
- Portsmouth Hospitals NHS Trust.
- Bromley Hospitals NHS Trust.
- Buckinghamshire Hospitals NHS Trust.
South West
- Royal Devon and Exeter NHS Foundation Trust
- North Bristol NHS Trust.
- United Bristol Healthcare NHS Trust.
West Midlands
- Sandwell and West Birmingham Hospital NHS Trust.
- The Royal Wolverhampton Hospitals NHS Trust.
- University Hospital Birmingham NHS Foundation Trust.
- Dudley Group of Hospitals NHS Trust.
Yorkshire and the Humber
- Hull and East Yorkshire Hospitals NHS Trust.
- The Leeds Teaching Hospitals NHS Trust.
- Sheffield Teaching Hospitals NHS Foundation Trust.
- Doncaster and Bassetlaw Hospitals NHS Foundation Trust.
- York Hospitals NHS Foundation Trust
Northern Ireland
- Western Health and Social Care Trust.
- Belfast Health and Social Care Trust.
Scotland
- NHS Lothian.
- NHS Tayside.
- NHS Grampian.
- NHS Lanarkshire.
- NHS Greater Glasgow and Clyde.
Wales
- Cardiff and Vale NHS Trust.
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