British Sugar

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Carbon as a Commodity Corporate Impacts! 28th
January 2003 Conserving CarbonA Financial
Sweetener? PC Gardiner British Sugar plc
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Agenda

• British Sugar ABF
• BS CCL strategy
• Trading to meet CCA targets
• Further Opportunities

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British Sugar (BS) Associated British Foods
(ABF)

• Energy Costs controlled by BS - 80,000,000 pa
• Coal, Coke, HFO, Gas Oil, Gas, Electricity
• ABF has gt80 factories with CCAs
• British Sugar has 6 Factories all with CHP
• 2 GT based, export electricity _at_ 50MW (24/7)
• Glasshouse, Phoenix, Bioethanol ?
• CHPQA, CCA, ECA, ETS, Rates Exemption

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Exposure to CCL

• BS Core business (CHP) not in CCA
• 6m CCL exposure
• CHPQA exemption
• 0.4m CCL rising to 1m after 2005
• Future reductions in CO2 used for Emissions
  Trading
• BS Animal Feed and Limekilns in CCAs
• 1.75m CCL exposure
• ABF manufacturing business in CCAs
• 3.5m CCL exposure

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BS/ABF CCAs

• Base year varies (typically 99/00)
• Administered by FDF / UKASTA / BLA / NFU / (Glass
  TA)
• Power, Natural Gas, Coal, (HFO, Gas Oil)
• First annual submission now complete
• Some sites short, some long
• ABF long sites have ringfenced allowances
• BS long sites verified allowances

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Short Long

• ABF Relative Sector (not verified)
• Long 9,000 Short 5,000
• BS Relative Sector - 6 sites (verified)
• Long 8,500 Short 2,500
• BS Absolute Sector (to be verified)
• Long TBA
• Transfer from BS to ABF sites

Ringfence this year
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Our Preparation for UKETS

• Source of potential CO2 savings?
• Fuel Switching, Restructuring / Source
  Substitution, Energy Saving projects, Energy
  Management etc.
• CHP support in ETS rules
• Analysis of Risk
• Comprehensive Risk Workshop (Aon / AEAT)
• Estimated value of Allowances?
• Market value, ROC cash out, CCA value
• Benefits
• Incentive payment, CCA targets, Learning (EU /
  Int.)

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Baseline
2002
Auction Bid Volume
2003
2004
2005
2006
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Buy or debit Bank
Bank or sell
Baseline
2002
2003
2004
2005
2006
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BS ABF Position

• BS in ETS
• Verification of Baselines complete
• Verification statement agreed by DEFRA
• Accounts with DEFRA set up
• Preparing for annual verification

• CCA in ETS
• First annual submission complete
• ABF long sites have ringfenced allowances
• BS long sites verified allowances
• Accounts with DEFRA set up

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Use of Registry

• Moved allowances to cover short positions
• Direct - Direct (between accounts)
• Direct Relative (through gateway)
• Overall effect
• All CCA obligations met
• All ETS obligations met
• Excess allowances in Trading Account

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Trading to meet CCA Milestone Targets
Not long to go for this milestone!!
Deadline mid February!!

• The CCL timetable.
• The 2006 crunch?
• Target profile
• Re-assessment by SoS
• Consider a typical factory

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Value of CCA / ETS Trades 1

• Annual Energy Bill 100k
• 3.2 million kWh
• CCL obligation 14k
• CCA value (80 rebate) 11k
• Energy Saving Target 3
• 96,000 kWh

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Value of CCA / ETS Trades 2

• Assume Actual Energy Saving 2.9
• 0.1 3,200 kWh
• Lose CCA for 2 yr 22k
• 3,200 kWh 1.4 t CO2e
• But buy CO2e allowances _at_ 10/t 20
• Net benefit of Trade 21,980 !!

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Value of CCA / ETS Trades 3

• No Actual Energy Saving 3
• 3 96,000 kWh
• Lose CCA for 2 yr 22k
• 96,000 kWh 42 t CO2e
• But buy CO2e allowances _at_ 10/t 420
• Net benefit of Trade 21,580
• CO2 valued at approx. 500/t

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CCA participants - Dont Delay !
Keep CCL discount

• Review TA statement
• Set up accounts in DEFRA Registry
• Buy Allowances
• Allowances moved to account
• Associate account with Target Unit ID number
  (TUID)

Keep
Keep
CCL discount
CCL discount
Keep CCL discount
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Further Opportunities

• Potential links to proposed EU ETS
• Mandatory in selected sectors
• UK may Opt in / Opt out selected sectors
• Potential links to Kyoto mechanisms
• JI Joint Implementation
• CDM Clean Development Mechanism