However, ensuring that they are properly prepared means starting to think about the data they will need and acting now, requiring the well planned step-by-step approach set out below.
Energy use in NHS healthcare facilities costs £400 million annually, and results in a net emission of around one million tonnes of carbon. However, the potential for saving is substantial. If healthcare Trusts meet their target of cutting primary energy consumption by 15 per cent between 2000 and 2010, the total NHS energy bill will be slashed by £50 million per year. According to the NHS Confederation, which published these figures in its “Taking the Temperature” document, produced in 2007 as part of the NHS response to global warming, this is equivalent to one small community hospital, or 7,000 heart bypass operations, The twin targets – energy reduction to save the human race, and cost reduction to save large amounts of money – are both, undeniably, highly desirable outcomes. But their pursuit is no longer an option for large organisations, including many of those that make up the health sector. The introduction of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme, which will affect 20,000 organisations, is seeing to that. What is the CRC? Intended to address climate change, the CRC (see Fig. 1) is a UK-led scheme seeking improvements in energy efficiency. It has been designed to increase awareness of energy conservation among larger organisations, as well as aiming to change their behaviour and encourage them to improve infrastructure. Due to commence in April this year across the UK, it is a mandatory emissions trading scheme which creates a financial incentive to save energy by placing a price on carbon emissions. Major energy users will buy allowances equivalent to their CO2 emissions each year, and will assume responsibility for deciding the most cost-effective means to reduce emissions. The Government’s overall emissions reduction target will be achieved by capping the total number of allowances available to participants. The Government hopes that, as well as reducing carbon emissions, the scheme will also help organisations save money by reducing their energy bills. Crucially, its aim is that these savings should be well in excess of the costs of participating in the scheme, so CRC should not be viewed as just another tax. With the financial pressures on the health sector, and the volume of energy consumption required for them to function, one can only hope that this proves true.
Divided into two phases
The scheme is divided into phases. An introductory phase will run for three years (from April to March, much like the tax year), while subsequent phases will each last for seven years, although two of those years are “preparatory years”, which overlap with the previous phase. Over the entire UK economy the CRC scheme aims to save at least four million tonnes of CO2 and £1 billion every year by 2020. Allowances will be sold by the Government at the start of each compliance year. During the introductory phase allowances will be sold at a fixed price of £12 per tonne of CO2. Following the initial sale period, participant organisations will be able to buy or sell allowances by trading on the secondary market, enabling organisations that have reduced their energy consumption by more than they expected to sell some allowances, while those that have higher emissions than anticipated will be able to buy additional allowances. The CRC will provide a financial incentive (a bonus payment) to organisations to reduce their energy use. In addition to the combined “carrot” that this bonus and the savings from energy use reductions provide, there is, of course, a “stick” too. Participants will be ranked in a league table according to performance – what the Government rather euphemistically refers to as a “reputational” incentive – in other words, organisations will reap good or bad PR depending upon the effectiveness of their energy-saving efforts. If this does not provide sufficient motivation there will be other “sticks” in the form of fines and, just to keep responsibility personal, imprisonment for the submission of false information. So, no escape then.
Pushed into the red?
In October 2009 the Government changed its initial proposal (as published in March 2009), and now in April 2011 organisations will only have to buy one year of allowances (carbon credits), and not two. Although organisations will be able to trade their credits throughout the year, giving some the opportunity to sell any surplus, at a time when lending is non-existent, and cash flow is critical to survival, the upfront cost commitment required could have a significant impact on patient care, pushing many organisations into the red or worse. So, needless to say, careful planning is required. There is no doubt that the CRC scheme has the potential to be very worthwhile. However, it is being introduced at the worst possible time given the current national and international financial situation. A proactive approach Environ has identified five steps that will help to ensure that organisations comply with the CRC, avoid the pitfalls and, potentially, make money from the scheme too. Step 1 – Who is affected The first step is to determine whether your organisation actually needs to participate. For non-local or central governmental organisations eligibility depends upon total half-hourly metered (HHM) electricity use between 1 January and 31 December 2008. If this was greater than 6,000 MWh (mega-watt hours) per year, the consumption level of those that spend roughly £500,000 a year on electricity, then an organisation will be a full participant in the CRC. However, in the consultation the Government proposed that NHS organisations which are legally distinct entities, according to the definitions in England, Wales, Scotland, and Northern Ireland, and that meet the above qualification criteria, will participate individually in the CRC. If a hospital is part of a Private Finance Initiative, Public Private Partnership, or Build, Design, Finance and Operate agreement, and has a majority owner (>50%), then the joint venture’s energy use will be aggregated with that of the majority owner, i.e. the NHS. Where the venture has no single owner with a stake greater than 50%, the joint venture will be counted as a separate organisation, and must assess whether or not it qualifies for the scheme in its own right.
Exceptions apply
There are some exceptions, such as those whose energy consumption, and hence emissions, are for transport purposes, or for generating electricity, and if a hospital already falls under the European Union’s Energy Trading Scheme (ETS), or over 25% of its emissions are covered by a Climate Change Agreement (CCA), it too will be exempt from full participation. Having determined that your organisation will be required to join the CRC, the next step will be deciding what you need to do. Step 2 – Information gathering It should already be evident that the CRC scheme will be highly dependent upon detailed, accurate, and timely information about energy use. It is therefore essential that an organisation understands exactly what data needs to be collected, and when reports will be required. While qualification for CRC is based solely on electricity consumption, once an organisation is actually participating in the scheme it will need to consider all energy use in determining its CO2 emissions. Most health estate managers are likely to have good electricity information already, but data is also required about the consumption of gas, oil, coal, and liquified petroleum gas (LPG). The complexity of some health Trusts’ energy use will mean that good quality data may take months to gather. This is not simply a matter of a visit to the cupboard under the stairs to read a couple of meters! Accuracy is naturally of key importance. We have all heard stories about organisations being faced with large bills because their meters have been incorrectly read, or not read at all, and such errors have similar potential to create problems with the CRC.
Act now on reports
Even though the scheme does not fully start until April, facilities managers need to instigate monthly meter readings now in order to be able to compile the reports required by the end of July 2011, and to calculate a realistic estimate of their annual consumption. Failure to do this will lead to an inflated estimate that could cost more in the long term. Allocating too few resources poses a major risk, which could directly impact on reinvestment in health estates, and on the care given to patients as a result. There is also a Government “stick” here. The Environment Agency (EA), which will act as the CRC Regulator, intends to audit 20% of organisations annually, adding further incentive to maintain an up-to-date, accurate CRC evidence pack. Those organisations failing to do this will be liable to fines. A director of the organisation, e.g. of a Trust, will take responsibility for the evidence pack to be supplied to the Secretary of State, which should contain structural records outlining the scope of the organisation and the types of sites that it includes, as well as the types of energy used. It will include data records showing energy consumption, including copies of monthly invoices or statements from suppliers. Special event records will cover any unusual events. such as a meter breakdown, change of energy supplier, or change in company structure. Evidence from 2010/11 has to be kept for the duration of the scheme because it provides the emissions data on which each participant’s proportion of the revenue recycling is based. Records from other years will have to be retained for five years after the end of the phase to which they relate. The information gathering process should not be considered in a static “snapshot” sense. The health sector is in a constant state of flux, and the CRC impact of these changes needs to be considered. Step 3 – Early action The CRC includes a mechanism to reward organisations that have already started to manage their emissions. The Government wants to encourage more action before the start of the introductory year, which begins in April, and has introduced these Early Action Metrics with that in mind. The first “metric” is to put in place Automatic Monitoring Reading (AMR), for all core consumption of electricity and gas. This means that meters are read and recorded remotely. The second “metric” is the Carbon Trust Standard. This is an external “seal of approval” made by Carbon Trust-registered assessors for energy efficiency improvements. Adopting both of these metrics will put an organisation at the top of the league table during the introductory year. In years 2 and 3, just 40% and 20% respectively of the league table ranking will be based on the coverage of these metrics. Step 4 – Reducing emissions The next step gets to the heart of the matter – reducing energy use. This first requires the development of a mitigation strategy to identify how carbon emissions can be reduced. This strategy should comprise a five, or even 10-year plan, of improvements for each financial year, complete with budgets and timetables. The strategy will be more complex the larger and more diverse the organisation is. Advice should be taken, and carbon management specialists like Environ will be able to advise on projects, prioritising opportunities and mapping them against cash flow.
Follow an ‘informed strategy’
In some cases, buying allowances or credits may be more cost-effective than investing in certain emission reduction measures, and in others, starting a project earlier might lead to benefits later, particularly if the price of carbon allowances increases. An informed strategy could enable an organisation to make the CRC cost-neutral or even have a positive impact on its bottom line, which is the Government’s ambition too. It is also worth remembering that investing in energy-saving projects can save on energy bills, providing more funds to reinvest in patient care. Step 5 – Ongoing reporting The final step is critical to smooth compliance with the new scheme. It is essential to establish a process for the ongoing monitoring, collection, and reporting of data. Organisations can either nominate someone in-house to do this, outsource it, or choose a combination of the two. Following these straightforward steps and seeking good advice will make sure you are well equipped to deal with this new scheme. Just remember that preparation and planning will minimise the risk and potentially provide an opportunity to cut emissions and save money, from which the healthcare sector can only benefit.