Draft component budget 2007/08 - climate change

Report: 7
Date: 15 February 2007
By: Acting Director of Resources on behalf of the Commissioner

Summary

As part of the Sustainable Development Budget Return 2006/07 the Mayor listed climate change as a priority for London, and as part of the consultation on the draft component budget the Mayor has requested that the MPS reduce CO₂ emissions by 10% on the current year by the end of the current business planning period (March 2010) pending publication of the London Climate Change Action Plan (CCAP).

The Mayor is currently also developing a CCAP for London to reduce carbon dioxide emissions (CO₂) by 30% by 2025 (on year 1990 emissions). Each GLA functional body is being required to commit to this target and outline measures and initiatives to reduce its emissions (30% reduction on a baseline of year 2000 [1]). When factoring in growth, [2] this means the MPS will need to reduce its CO₂ emissions by 110,800 tonnes by 2025.

The above reduction targets are required to be met through a combination of long and short term measures to reduce energy consumption, improve energy efficiency and utilise renewable energy supply and vehicle technologies. This paper focuses on the short-term measures, which can be taken to meet the 10% reduction target for the next business planning period.

A. Recommendations

1. That members adopt the Mayor's CO₂ emission reduction target of 10% on the current year by the end of the business planning period (March 2010), which equates to a reduction of 17,619 tonnes of CO₂.
2. That members approve the following proposal for achieving this target in line with the guidance:
   • The MPS prioritise reducing carbon emissions generated from the MPA estate through a capital investment in energy efficiency measures of £4.6 million (phased over 3 years) and by retaining the current annual revenue cost of £375,000 (2006/07). The capital sum is an increase of £3.475 million over the three year period over previous Property Services bids or forecasts for capital expenditure and will need to be included in the capital programme for funding. An Option Appraisal & Risk Analysis has been included in Appendix 1. Option 4 is recommended.
   • The fund to be ring fenced to deliver a programme of energy efficiency works with a payback period of 10 years or less and utility cost savings will be recycled back into the fund. The programme will save 7% of the total CO₂ emissions generated in 2005/06 by the MPA transport fleet and buildings.
   • The MPS roll out a climate change awareness programme to all MPS staff and Facilities Management Suppliers to deliver the remaining 3% saving through energy efficiency and good housekeeping in the workplace. All MPS Directorates will have a responsibility for raising awareness of their staff and should nominate an Environmental Champion (Band E or above) to work in conjunction with the MPS Environment Team to monitor and support awareness and energy reduction initiatives. Resource Managers would support the Environmental Champions at a local level.
   • The current annual revenue cost of £375,000 will be utilised for additional staff resources, project management and awareness raising to deliver the programme.
   • Note that from 2010/11 year on year revenue savings from reduced utility costs are estimated at £660,000 per annum. It is the intention of the Mayor that this saving will continue to be invested in energy efficiency measures (i.e. "ring fence") and will potentially significantly contribute to meeting the Mayor's CCAP long term target of reducing CO₂ emission by 30% by 2025.

B. Supporting information

1. The majority (78%) of MPS CO₂ emissions are generated from heating, lighting and cooling MPA buildings. The remaining 18% from the consumption of fuel by the vehicle fleet, and 4% from air travel.

2. The baseline for CO₂ emissions for the current year (2005/06 [3]) is comprised of emissions from buildings, the vehicle fleet and air travel totalling 176,186 tonnes.

3. Due to significant organisational growth the MPS increased its CO₂ emissions in 2005/06 by 7% based on the previous year. Roll out of the Safer Neighbourhoods Programme is likely to result in further growth in energy consumption and CO₂ emissions if no action is taken.

4. There are a number of energy efficiency technologies, which can reduce building CO₂ emissions significantly. As part of the MPS Environmental Strategy, Property Services have a programme of implementing these technologies, which is currently financed through a small annual budget. However, in order to deliver a reduction of 10% this programme would require significant enhancement.

5. There are a number of additional benefits associated with the implementation of energy efficiency measures within MPS sites, which include improved user comfort through better building heating and cooling control, and improved resilience through reduced risk of building failures. In addition, reducing MPS reliance on fossil fuels provides additional resilience against rising energy prices and increased future revenue costs.

6. Energy saving works have been identified and would require a capital investment of £4.6 million over three years (See Appendix 1: Option 4). The works will be delivered in conjunction with the FM outsource supplier and a dedicated climate change project delivery team. The following types of measures will be financed as part of the programme across 200 MPS locations:

• Valve Insulation Covers
• Condensing Boilers
• Installation of Thermostatic Radiator Valves
• Pipework insulation
• Building Management System Installation and upgrades
• Direct fired water heating/plate heat exchangers for domestic hot water heating
• Zoning heating/cooling systems
• Upgrade fabric insulation
• Glazing upgrades

7. A detailed programme of works will need to be developed in conjunction with the new FM outsource suppliers to include detailed feasibility at each MPS site. The most cost effective measures (£/CO₂) will be prioritised. The programme will be developed in line with the Estates Strategy, and improvements will only be made to the retained estate (long/medium term) as identified by Borough Asset Management Plans, and in time the Asset Management Plans for the remainder of the estate.

8. This will yield yearly savings on utilities costs of approximately £460,000 per annum for energy efficiency works and £200,000 from energy awareness, which will be recycled back into the fund to finance further energy efficiency work. These savings will be monitored through the utility bills, and building energy management systems. The concept will continue post 2010 to meet longer term (and more challenging) targets contained within the Mayor's Climate Change Action Plan. The target proposed is a CO₂ reduction of 30% by 2025 (on year 2000 emissions), which equates to 110,800 tonnes of CO₂ by 2025 for the MPS. It is estimated (using current utility and technology costs) that recycling our utility savings from 2010/11 could potentially deliver savings of 68,000 tonnes of CO₂ by 2025 (61% of the long term target). The remainder could be achieved through energy efficiency awareness, disposal of existing inefficient building stock and roll out of energy efficient and renewable energy technology through the Estates Strategy.

9. There are a number of additional benefits associated with the implementation of the above measures within MPS sites, which include improved user comfort through better building heating and cooling control, and improved resilience through reduced risk of building failures. In addition, reducing MPS reliance on fossil fuels provides additional resilience against rising energy prices and increased future revenue costs.

10. Climate change awareness should be built into corporate communications, training and induction programmes. The MPS Environment and Energy Managers will provide a central point of expertise for Human Resources Directorate and the Department of Public Affairs, liasing with the Directorate Environmental Champions to develop the appropriate materials and messages.

11. In August 2006 the MPS committed to offset CO₂ emissions associated with all air travel through the Defra carbon offset scheme in line with GLA requirements. Operational Command Units will pay an additional offset charge as an incentive to minimise air travel. The MPS has been advised that offsetting CO₂ is unlikely to be counted towards target achievement as this is viewed as a mitigation measure, not CO₂ reduction and has not been factored into these carbon reduction calculations. Further clarification on this policy has been requested from the GLA. Reduction in the number of business flights will count towards target achievement.

12. Technology to reduce vehicle CO₂ emissions is not significantly developed to meet current MPS operational requirements. There is no viable alternative to response vehicles currently on the market. Hybrid vehicles are a suitable alternative to General Purpose vehicles. As part of the development of the Climate Change Action Plan, the MPS has considered, in outline, the benefits, implications and additional costs of changing 600 of its lowest performance General Purpose cars from the small-engine diesel car currently specified to an available hybrid model. However the resultant reduction in carbon emissions would be very low (approximately 0.5% on the current baseline), albeit the benefit from lower particulate and NOx generation would be greater. The extra cost for the 600 vehicles would be in the order of £2.35 million (capital) plus any additional maintenance fees to support the more complex hybrid vehicle. At this stage the MPS would not consider this the most favourable option for investment to reduce CO₂ emissions in this business planning period. MPS Transport Services will continue to proactively take part in trials of alternatives and seek other opportunities to reduce emissions where possible in line with the MPS Environment Strategy. In addition, the MPS should promote cycling and walking for patrolling and operational duties where feasible, and utilise hybrid vehicles wherever appropriate. Fuel efficient driving for non-response driving should also be promoted.

13. Transport for London have currently allocated £25 million of capital investment to meet the Mayor's short term target (10% reduction by 2010). LFEPA similarly have allocated £3 million capital investment. The LDA are too small to merit a fund. TfL are landlords to the new LDA Palestra building, where renewable technologies have been installed and a Combined Heat & Power (CHP) plant is being considered.

C. Race and equality impact

No equality or diversity implications have been found to be associated with this proposal.

D. Financial implications

1. A capital investment of £4.6 million is required to achieve a 10% reduction in CO₂ emissions by 2010. This will be phased over 3 years 25% Year 1, 50% Year 2, 25% Year 3. This sum is an increase of £3.475 million over previous Property Services bids or forecasts for capital resources.

2. There will be a continuing revenue cost of £375,000. Already funded from Property Services revenue budget.

3. From 2010/11 year on year revenue savings from reduced utility costs of £660,000 pa (£460,000 from energy efficiency works and £200,000 from energy awareness). The project payback period is 5.8 years from full implementation in year 2010/11. Project lead in time and financial savings are shown in Graph 1 below:

Graph 1:

4. It is proposed that utility savings continue to be ring fenced for energy efficiency post 2010/11 (See Item B8).

E. Background papers

• Letter from the Mayor of London, Ken Livingstone to the Chair of the MPA Len Duvall on the Draft Component Budget - 7th November 2006

F. Contact details

Report author: Emma Devenish, MPS Environment Manager, Property Services

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1: Option Appraisal & Risk Analysis

Options:

1. Do nothing, or do not meet the requirement;
2. Meeting part of the CO₂ reduction requirement from vehicle technology (e.g. hybrid vehicles for general purpose vehicles;
3. Investment in a range of energy efficiency technologies across the estate with a combination of high and low efficiency savings to meet both the long and short term target;
4. Investment in the lowest value (capital) measures (£/Tonne of CO₂ saved). This option requires less capital to meet the short term requirement (10% reduction in CO₂ by 2010) but falls significantly short of the long term target (30% reduction in CO₂ by 2025) due to longer payback periods.

Benefit & Risk Analysis Option 1: Do not meet the requirement 

Benefit Analysis

1. No additional capital investment required.

Risks

Strategic:

1. Failure to meet the expectations of the Mayor in relation to Climate Change agenda. 
2. Climate Change is listed as a priority for action as part of the Mayor's budget guidance.
3. Potential negative press and public relations associated with failure to address climate change issues
4. Increasing future energy costs are likely to mean increased utility costs for the MPA. This option will not address this problem.

Benefit & Risk Analysis Option 2: Including vehicle emission reduction programme

As part of the development of the Climate Change Action Plan, the MPS has considered, in outline, the benefits, implications and additional costs of changing 600 of its lowest performance General Purpose cars from the small-engine diesel car currently specified to an available hybrid model. However the resultant reduction in carbon emissions would be very low (approximately 0.5% on the current baseline), albeit the benefit from lower particulate and NOx generation would be greater. The extra cost for the 600 vehicles would be in the order of £2.35 million (capital) plus any additional maintenance fees to support the more complex hybrid vehicle.

Benefit Analysis

1. The CO₂ emission baseline is calculated from emissions of both the vehicle fleet and estate (building operation). This option demonstrates an effort to reduce the main sources of emissions. 

Risks

Strategic:

1. Current vehicle technology does not meet many of the operational requirements of the MPS so is only suitable for general purpose vehicles 
2. 10% reduction target not met. This option only delivers a 0.5% reduction. A further reduction of 9.5% would need to be delivered from energy efficiency in buildings 

Project:

1. Additional maintenance fees 
2. Technology does not meet performance needs 
3. Technology not available at the predicted funding level

Benefit & Risk Analysis Option 3: Investment in a range of energy efficiency technologies across the estate with a combination of high and low efficiency savings to meet both the long and short term target.

There are a number of building energy efficiency technologies, which will reduce the energy consumption and therefore lower CO₂ emissions. In addition, reductions can be achieved through staff and supplier awareness programmes. It is proposed 7% of the target is achieved from energy efficiency and 3% from energy awareness. This split is in line with recommended approaches for energy conservation, but has been moderated to consider the size of the estate, number of staff and unique operational demands of the Service.

The Property Services project backlog schedule has been examined to provide a list of potential projects for 200 MPS sites. The following types of projects were selected as having the potential to reduce CO₂ emissions. Each project varies in terms of the investment required to save a tonne of CO₂ and the annual financial saving obtained through reduced utility costs (dependent on the payback period of the technology). A summary is provided in Table 1. By selecting a range of all of these technologies, the annual financial saving per tonne of CO₂ saved can be maximised to deliver maximum annual returns. These savings can be used to finance further energy efficiency works, to deliver maximum CO₂ reductions over the delivery period. This approach would require an investment of £8.1 million, to deliver the short term target (10% by 2010) and an annual utility saving of £1,000,000 from full implementation of the programme (Year 4 - 2010/11). It is estimated (using current utility and technology costs) that recycling the utility savings from 2010/11 onwards could potentially deliver savings of 105,445 tonnes of CO₂ by 2025 (95% of the long term target). The remainder could be achieved through energy efficiency awareness, disposal of existing inefficient building stock and roll out of energy efficient and renewable energy technology through the Estates Strategy.

However, the following areas of uncertainty effect the achievement of the long term target:

• Long term growth plans for the MPS;
• Changing operational requirements impacting on accommodation needs;
• Long term changes in energy markets and utility prices;
• Inflation;
• Advancement in energy efficiency technology and building design; and
• Changes in climate change policy and legislation.

As a result of the issues above, there is some uncertainty around the value of investing in higher value projects, which deliver larger annual returns compared to Option 4: Investment in the lowest value (capital) measures (£/Tonne of CO₂ saved).

Table 1: Projects, Investment Level and Savings Project Type Investment 

Benefit Analysis

1. Meets the short term target of 10% reduction in CO₂ by 2010 requested by the Mayor as part of the draft budget consultation
2. Significantly contributes (95%) to meeting the long term target suggested by the mayor of 30% reduction in CO₂ by 2025

Risks

Strategic:

1. Long term target not addressed
2. 10% target not met
3. Changes in climate change policy/legislation

Project:

1. MPS changes its long term growth plans leading to higher levels of CO₂ emissions
2. Operational requirements change impacting on accommodation needs outside project scope
3. Long term changes in energy markets and utility prices
4. Inflation above that predicted
5. Energy efficiency awareness does not meet the desired reduction 
6. Contractors unable to action the required works within the timeframe

Benefit & Risk Analysis Option 4: Investment in the lowest value (capital) measures (£/Tonne of CO₂ saved). RECOMMENDED

Option 4 uses the same approach outlined in Option 3, but focuses on prioritising the projects with the lowest financial investment per tonne of CO₂ saved to achieve the required CO₂ saving. See Table 1 in Option 3. 7% of the target will be achieved through energy efficiency and 3% through energy awareness.

This option requires less capital to meet the short term requirement (10% reduction in CO₂ by 2010) but falls significantly short of the long term target (30% reduction in CO₂ by 2025) due to longer payback periods and lower annual returns being recycled into the revolving fund. It is estimated that recycling the utility savings from 2010/11 onwards could potentially deliver savings of 68,000 tonnes of CO₂ by 2025 (61% of the long term target). This approach requires a capital investment of £4.6 million and annual saving of £650,000.

It is recommended that the MPA/S approve Option 4 to deliver the short term target (10% CO₂ reduction on 205/06 levels by 2010), and review progress at the close of the project in 2010/11. It is likely that further investment will be required to meet the long term target (30% reduction of CO₂ on 1990 levels by 2025) to deliver the Mayor's Climate Change Action Plan.

Benefit Analysis

1. Meets the short term target of 10% reduction in CO₂ by 2010 requested by the Mayor as part of the draft budget consultation
2. Contributes (61%) to meeting the long term target suggested by the mayor of 30% reduction in CO₂ by 2025

Risks

Strategic:

1. Long term target not addressed
2. 10% target not met
3. Changes in climate change policy/legislation

Project:

1. MPS changes its long term growth plans leading to higher levels of CO₂ emissions
2. Operational requirements change impacting on accommodation needs outside project scope
3. Long term changes in energy markets and utility prices. Inflation above that predicted
4. Energy efficiency awareness does not meet the desired reduction
5. Contractors unable to action the required works within the timeframe

Mitigation

1. Ensure all new projects conform to very good energy efficiency standards. Ensure all IB Business Cases consider impact on energy emissions and the estate programme building in appropriate energy mitigation.
2. Ensure all IB Business Cases consider impact on energy emissions and the estate programme building in appropriate energy mitigation.  
3. Monitor project costs and programme.  
4. Monitoring of awareness communications impact - through staff surveys etc. Close communication with business groups environment champions 
5. Monitoring of project programme delivery and liaison with contractors

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