Sometimes you see something and you look back and think, why didn’t I act then, push harder and shout louder? Thankfully this wasn’t a murder, or any sort of criminal act, just a poorly designed, overly confusing and potentially damaging energy support mechanism.
Ok, so I’ll start at the beginning but want to outline a few overarching views first. Firstly, I want to outline my support for the development of sustainable biomethane, it’s a good way to use waste and some break crops but I’ve explored this in an earlier blog
so won’t go into too much detail. I don’t however think that purpose grown crops are a very good idea on their own.
Secondly, I believe the evidence (and industry) on the fact that the best way for supporting renewable generation (power and heat) is to provide guaranteed tariff style payments such as the FiT, the modern RO (is now at least designed to), the CFD and the RHI. Guaranteed subsidy levels over a set time scale provide certainty for developers which reduces risk and as such reduces overall costs. This is something which market based mechanisms (such as the old RO, and emissions trading) evidently do not do. As such, the RHI which pays biomethane developers a set price per kWh of biomethane injected offers a stable and low-risk policy environment for developers. Industry loves it.
Thirdly, I think that developers should be fairly rewarded for renewable energy projects but I do not think that developers who are already relying on public subsidy should game the system or try and gain windfalls. This is no better than tax evasion.
Finally I want to say that I don’t think I’m wrong on any of this but if anything is incorrect, please let me know. I’m keen to know who agrees and who disagrees.
So, back to the beginning, 2010 to be precise and one of my first areas of work in my old role. The RHI was in development and we were expecting clarity on tariff levels soon and the scheme introduction was expected not long after. I was approached along with some colleages (and now friends) to discuss and potentially invest through my old firm in a new scheme which would reward biomethane by awarding each unit of gas injected with a carbon credit. This carbon credit could then be traded and bought by people wishing to offset their carbon emissions and supposedly a ‘real’ price could be found. The producer of the biomethane would get this value, the scheme operator would get a cut and the buyer could offset some of their emissions. However, between myself, an ex-financier and another policy wonk, we didn’t get it. There were some fundamental problems:
Firstly, the plants were already going to be rewarded with RHI. Why was this needed? Wasn’t it just a windfall? It was the tax payer funded RHI that was going to get projects built, not this side scheme. So surely this was double subsidy because the RHI was paying for this and the carbon benefits from the biomethane were attributed to the RHI and as such included in the impact assesment for the RHI. On its own, this scheme wasn’t going to build new projects and even as an addition, it wasn’t going to be seen as guaranteed income by investors.
More importantly, legislation didn’t allow these credits to be used for offsets against legal systems and schemes such as the CRC. Why would anyone buy these credits? Maybe it looks good from a corporate sustainability reporting perspective but the scheme is certainly not reducing any additional CO2, in fact, if companies are paying for these carbon credits (carbon which would have already been saved anyway) it is actually costing carbon because this money could have been spent on activities which would deliver real carbon savings.
On the first point the suggestion to us was that over time, the RHI could be reduced and the ‘private sector’ could fill the gap and pay for biomethane topping up the RHI payments and potentially eventually completely taking over. Bear in mind at this point in time there was no biomethane injection taking place, the RHI hadn’t been finalised and the whole electricity market design was moving away from ‘market’ mechanisms because they hadn’t worked. We strongly made the point that investors in long term (20 year) projects would not want to be subject to variable market led carbon prices for biomethane but would want certainty in income more than anything. Even today, people see the RHI as risky, can you imagine how they would see this mechanism? They simply wouldn’t invest.
The argument in return was that by moving this mechanism to the private sector, it removed the risk of the Government stopping funding. This ignored the reality that if this was market led scheme it would still be based on policy and legislation, just funded differently and as such actually have at least as high policy risk and certainly higher price risk.
On the second point, the people presenting the scheme wanted to get legislation changed to allow this to happen. I’ll come back to this.
The thing to also bear in mind was that parallel to this scheme, another trade association was developing another more simple scheme which rewarded biomethane with certificates basically guaranteeing the origin of biogas. Again, this could be seen as double counting, the RHI was already expected to give the designed 12% return to projects so this was just an addition. This scheme did not however propose to mess with the support mechanism for biomethane.
At the time, I expressed my concerns with both schemes really just hoping they would go away. We certainly didn’t invest and actually saw the development of the schemes as potentially damaging to the industry, potentially making developers look like subsidy junkies.
…………. 4 years later…………
So it was with real annoyance that I spotted a tweet explaining how Marks and Spencer had just signed a deal to buy some of these credits in order to offset its own emissions.
Marks and Spencer have the goal of making their operations carbon neutral which is a great thing but effectively what they are doing is paying an existing project for certificates which have no real value. They can’t use the certificates for offsetting but will using them for CSR purposes. They could instead have spent some money delivering some actual carbon benefits.
I’ve included the response I got from M and S. As far as I can see, the certificates can’t actually be used for offsetting purposes legally though there are some changes going on around this. I really hope that for the reasons outlined, DEFRA do not make this happen. Instead, as the RHI and associated carbon savings are paid for by the tax payer, the reduction in carbon intensity to UK gas should be applied to the overall UK gas grid carbon intensity used in DEFRA carbon factors and SAP etc. The RHI carbon benefits should be attributed to the person who paid for them, the tax payer. If anyone else receives benefit for this, it’s double counting.
So in conclusion, despite people now paying money for this scheme, it offers no additional carbon benefit or additional investment and such is a net cost to the UK energy industry. This is money which could have been spent on actual carbon reductions but instead goes to the green gas scheme operators and developers already receiving the RHI. It’s not even something that developers want because of its complexity and risk over the longer term. With just 4 schemes operational, the RHI remains the right tool for the job and will do for some time.
I hope that M and S really do think more about this and rather than paying for non-existent virtual carbon, instead focus on investing in making their own biogas with their own digesters and food waste. There is plenty of potential there.
I’m not saying all this to be difficult, I just want an honest and open debate. And most importantly, when I tuck in to my M and S Cumberland pie, I want to know that the premium I am paying is funding real sustainable investment. That would be even more delicious.
Thanks a lot for your email, I was forwarded on your enquiry from a colleague. I’ve copied in some extra info below on the Green Gas Trading Limited biomethane certification scheme that may help –
Green Gas Trading was set up to provide both a credible process for certifying biomethane and a trading platform to facilitate the trading of certificates. The biomethane certificates issued under the scheme can be traded separately from the physical commodity gas. This allows the certificate owner to transact the physical commodity at the market price for that product whilst seeking the highest economic value for the Biomethane Certificate (“BMC”). Trading the gas and the certificates separately makes it possible to maximise the value of this exceedingly low carbon, green gas at a market determined price.
The BMC allows a “brown”, fossil gas buyer to decarbonise their gas supply without having to buy a specific green tariff. The BMC has been designed to be a European Energy Certification Scheme (EECS) compliant certificate, which allows the buyer to evidence their “green gas” purchases, without the need to change any contractual arrangements as regards their existing gas supplier. The BMC is unique in that it has a sustainability factor as part of the certification data. This is akin to the “carbon saved” criteria which is certified on EECS compliant certificate. This allows a “true” carbon value for the biomethane to be established, which is the key to its use as a potential offset. Once a biomethane plant can calculate the process cost of carbon for its gas it is possible to certify this on the BMC as the “true” carbon value for that energy. This allows purchasers of BMCs to have an audited comparison for the carbon value of the biomethane they have purchased as relative to the known carbon value of fossil gas (184kg CO2e per MWh).
Under the latest Defra guidance BMCs are eligible for offsetting carbon credits. We as M&S are insistent on contracting BMCs from developers who in turn contract a Gas Purchasing Agreement with our natural gas shipper Total.
In regards to our future plans, I cannot go into too much detail but we are looking into furthering our biomethane options and are trying to ensure 50% of the energy used in M&S buildings comes from certified green biomethane sources by 2020.
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