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Carbon Trading on Trial

14 October 2010

Carillion took part in a Carbon Trading Simulation trial to test the systems and processes likely to be faced by organisations under the real CRC regime. Jim Harbidge and Amie Long describe their experience and lessons learned in PFM's October issue published this week

IN 2009, CARILLION and 44 partner organisations took part in the largest simulation to date of the forthcoming carbon reduction commitment energy efficiency scheme (CRC) using real energy data and ‘shadow’ dealing of carbon allowances as a risk-free simulation of the cap and trade scheme.
CO2 Sense Yorkshire, an organisation that leads a government programme of support; advice and investment to help business reduce their carbon impacts and benefit from opportunities within the developing low carbon economy. provided an internet based trading platform. It offered a series of workshops and ongoing consultancy support to help participants develop their trading approach and deliver carbon savings.
Within the simulation, participants were asked to submit initial ‘baseline’ data relating to energy consumption within their estate. Using this baseline, participants then created a bidding strategy and purchased carbon allowances to cover their predicted emissions. Mirroring the likely UK market for tradable carbon permits, the market created by CO2Sense set a cap of 98 percent of the required allowances, offered a monthly fixed price auction to establish a ‘clearing’ price for allowances followed by a trading period each month within which participants could trade excess or shortfalls.
As a provider of facilities management and energy services for some 600,000 buildings in the UK, and with its own managed estate of 17 buildings, Carillion saw the trial as a unique opportunity. It wanted to advance its own thinking in relation to CRC, explore additional data requirements which would underpin its own strategy for carbon trading and have the opportunity to influence carbon through a full range of FM activities and innovations.
Inclusive team Carillion also saw the immediate danger of ‘sleepwalking’ into a scheme which could have significant financial and reputation impacts. To this end, Carillion established a working team comprising senior-level financial support to advise on trading strategy and cash-flow impacts, energy, energy bureau specialists and energy engineers within Carillion’s energy team and specialists able to help us relate business activity and a history of change and investment in our buildings to our energy use.
As a measure to reduce the ‘risk’ of having to buy or sell permits in an unpredictable shadow market Carillion’s strategy relied on accurate prediction our carbon requirement for the year ahead . Early adoption of smart metering enabled the company to establish energy baselines for many of its buildings based on regular, accurate measurement, and in some cases sub-metering of functional areas such as catering or data processing. Filtering out peaks and troughs caused by weather extremes, the ‘carbon budgets’ for each building were constructed taking into account predicted growth and operational changes.
Carillion soon discovered, however, that amongst buildings of similar type, age location and function, there was significant variance in pattern and volume of energy use. Working with local facility managers and mining data from sources such as helpdesk systems that revealed how intensively buildings had been used, it was able to understand how aspects such as workspace layout, data processing activity, catering and history of energy improvements at each site might explain this variance. This helped us establish more accurate carbon budgets.
At first sight, what goes on within a building including workspace layout, lighting and provision of environmental comfort, might appear less important to the aims of energy efficiency than the ‘quick win’ savings offered by investment in efficient HVAC. However, recent Carbon Trust research concludes that efforts to reduce internally generated energy and related to the way we use our buildings and the efficiency of lighting schemes should precede strategy for heating, cooling and ventilation. This staged approach offers a different set of heating and cooling opportunities with equivalent cost and carbon impacts - it can even offer the opportunity to introduce natural ventilation where heat generation can be managed.
This suggests not only a renewed importance for energy efficiency projects which help reduce heat, but also a developing role for FM teams in relating energy ‘exception’ to building; and in working with engineering teams, building users and third party suppliers to resolve these, prevent reoccurrence and develop better operational response and strategy for energy management.
Carillion’s approach to engineering services is similarly undergoing a revolution in the development of energy skills and ‘capability to ensure an energy-focused view of planned maintenance to identify carbon-saving opportunity.
Implementing the lessons
Carillion predicted its own energy use and carbon requirement within 3 percent of actual consumption. However, in common with other participants it opted to ‘over’ buy by a further 7 percent of its requirement balancing the risk of buying too few allowances and preserving cash flow. Carillion were successful in ‘selling’ its 10 percent surplus to another simulation participant at a ‘profit’, however, carbon prices within the trial were extremely volatile and could easily have been a ‘loss.
In applying the lessons of the simulation to our own CRC strategy, Carillion believes that there is ever more need and opportunity to capture energy data as a basis for decision making and are presently installing smart meters within all of our buildings. Whilst this will enable better prediction of our requirement for carbon allowances, it will also offer a planned, more cost effective approach to energy procurement.
The volume of extra data does, however, present a new challenge and opportunity in the way we interpret and respond to this information. Carillion concludes that because the CRC has farreaching implications related to reputation, cost and compliance, and in the way we use our buildings, it demands careful treatment of a much wider set of business stakeholders than many (ourselves included) first considered.
Following the trial, CO2 Sense concluded that whilst the simulation had proved  extremely successful, it highlighted how several aspects of the CRC will prove challenging. Collecting and submitting accurate data on time will perhaps be the most significant challenge, particularly for organisations with large or multiple sites or complex partnership relationships.
“The implications of CRC legislation on organisations are substantial,” explained Amie Long of CO2 Sense. “The challenge for business is not only one of legislative  compliance, but also to reduce financial risks in buying and selling carbon participants an insight into the challenge faced when permits become freely traded in 2013.”
Whilst the trial permitted participants to submit data for any proportion of their estates, CRC participants must compile and submit data for a minimum of 90 percent of all company estates and are likley to be audited by The Environment Agency to this end.
Proposals for a publicly available carbon league table also raised concerns during the trial. The threat of bad publicity was a major concern for all participants with many only willing to participate if league tables were excluded from the trial. Within the CRC, however, publicly available carbon league tables will have significant implications for those wishing to maintain a positive image.
After taking part in the trial, participants became keen to re-assess the governance surrounding carbon and where responsibility for it lies within their organisations. The financial risks associated with the CRC demands that senior financial officers and others must be involved in strategy for carbon reduction and trading.
A second phase of the CO2 Sense simulation will take place in the autumn, offering further support and strategy advice to a wider range of organisations than the initial trial. The new phase aims to build on the shared experience and learning of the first and support business success in the low carbon economy.
Jim Harbidge is Sustainability Manager at Carillion Plc ( and Amie Long is Programme Support at CO2 Sense (

Trial participants comments:
“Northern Rail signed up to participate in the Carbon Trading Yorkshire project in 2009.
The project has enabled Northern to focus on strategic areas to not only comply with the CRC EES but also benefit from it. These include: ascertaining meter locations and
identification, data collection and management, operational change, environmental investment and also communications. The CTY project provided forums for knowledge sharing and information gathering, coupled with the opportunity to trade in a practice environment giving an invaluable insight to the real CRC EES. Northern has gained from the project and has now joined phase 2 of the scheme.”
Euan Hilton, Northern Rail, Utilities Contracts and Data Manager

“CTY helped Marshalls network with a number of other large organisations, this networking proved invaluable. The simulation gave us a good appreciation of potential market scenarios and experience of trading.”
David Morrell, Marshalls, Group Sustainability Manager.

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