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H1 Annex K – Assessment of a case for derogation from BAT AELs Consultation 2013 Published by: Environment Agency Horizon House, Deanery Road Bristol BS1 5AH Tel: 0117 934 4000 Email: enquiries@environment- agency.gov.uk www.environment-agency.gov.uk © Environment Agency All rights reserved. This document may be reproduced with prior permission of the Environment Agency. Further copies of this report are available from our publications catalogue: http://publications.environment- agency.gov.uk or our National Customer Contact Centre: Tel: 03708 506506 Annex K BAT AEL Derogations v 2.1 October 2013 1 Annex (K) Assessment of a case for derogation from BAT- AELs under IED The introduction of the Industrial Emissions Directive (IED)1 will result in the phased introduction of new BAT Conclusions for each industrial sector, which are likely to be more precisely expressed than has historically been the case under previous BAT Reference documents, and will in more cases have specific associated emission levels (AELs). The IED requires all existing Ch II (EPR Sch 1) activities to have their permits reviewed and varied so as to comply with BAT AELs within four years of publication of the new BAT Conclusions in the Commission’s Official Journal. This must be done unless a derogation is granted by the Competent Authority (Environment Agency in England, Natural Resources Wales in the Principality). This document describes the process for :  making a case for a derogation from BAT; or  comparing a range of alternative BAT options and justifying a final choice and guidance is provided on the information that we would expect you to provide when making such a case or decision. This guidance does not go into detail on selecting a choice from a range of BAT options, but you could follow a similar approach to that for derogations. Annex K is part of the Environment Agency’s H1 Environmental Risk Assessment Framework and should be read in conjunction with the H1 Environmental Risk Assessment – Overview guide to understand who needs to use it and how it fits in to the framework. 1 2010/75/EU Content Annex K BAT AEL Derogations v 2.1 October 2013 2 Annex (K) Assessment of a case for derogation from BAT- AELs under IED ....................... 1 About this guidance ........................................................................................................ 4 Making the case for a derogation ................................................................................... 4 Costs associated with a derogation ................................................................................ 5 Environmental Impact of chosen options ........................................................................ 9 Comparing costs and benefits ........................................................................................ 9 What you should do next ...............................................................................................10 Appendix 1 ....................................................................................................................11 Summary of changes Annex K BAT AEL Derogations v 2.1 October 2013 3 Below is a summary of changes made to this Annex since the launch in April 2010. Annex version Date Change Template version Issue 2.0 August 2011 Simplifying the Introduction and reformating the document to respond to issues raised in the 2010 H1 public consultation. H1 April 2011 Issue 2.1 October 2013 Annex K clarified to provide some guidance to an operator who wishes to make the case for derogation from the BAT AELs that are applied to their activity through the BAT Conclusions document. H1 April 2011 Annex K Annex K BAT AEL Derogations v 2.1 October 2013 4 Introduction About this guidance Following the introduction of the IED we now see Annex K as relevant to the assessment of the following options:  where you propose a BAT which is not that prescribed by the BAT conclusions, but for which you wish to make a case;  where you cannot, or do not believe you should have to, comply with the BAT-AEL and you require a derogation  where you propose to comply with the BAT-AEL but at a later date than set out in the BAT Conclusions This annex will help you compile a case for derogation for some, or all, of the activities operating on your site. This should not be taken as encouragement in making an application for derogation, although the Environment Agency will determine any application objectively and fairly based on the evidence provided. In addition, derogations can be granted only on the basis set out in the IED. You should therefore consider carefully whether you can properly justify your application. You should not in any way assume that a derogation will be granted, and you must provide a rigourous justification based on the criteria set out in the IED.. You are reminded that in considering a case for derogation and in reaching its decision, the Environment Agency must take account of its duty, under the Directive, to ‘ensure that no significant pollution is caused and that a high level of protection of the environment is achieved’. Making the case for a derogation In making a case for a derogation we expect you to present a logical case for why a derogation is justified in your circumstances based on the criteria set out in the IED. A derogation will be required for each release, that is the subject of a BAT AEL in the BAT Conclusions document, where you are unable to comply with such levels within the four-year deadline for compliance. In presenting your case you need to clearly state what it is that you propose to do and the alternative emission limits that should apply to those releases for which a derogation has been sought. Each case will need to be backed-up by cost data, with figures supported by quotations from equipment suppliers or similar. The impact of your chosen option should also be given against the impact of operating at the BAT AEL. The cost data should be given with year on year variations shown across the life of the project. Any derogation request therefor needs to be supported by at least the following information:  the total cost of complying with the BAT AEL or EQS  a summary of the environmental impact associated with operating at the BAT AEL (both in terms of the resulting environmental concentration at receptors and annual mass release); Annex K BAT AEL Derogations v 2.1 October 2013 5  the total cost of implementing your proposed alternative to the BAT AEL,  a summary of the environmental impact associated with operating at the alternative emission levels (both in terms of environmental concentration at receptors and annual mass release);  a summary of the difference between the two options, both in terms of cost and environmental impact;  using this comparison to demonstrate that the costs of meeting the BAT AEL are disproportionately higher than the environmental benefits due to one or more of the following: o the geographical location of the installation o the local environmental conditions of the installation o the technical characteristic of the installation Costs associated with a derogation Whatever operating option is proposed it is important that you set out the costs in a consistent and standard format. In making a case for derogation you should compare the costs of operating at the BAT AEL with the costs of operating at your proposed emission levels. In carrying out your option appraisal we commend you to refer to the Treasury’s Green Book.2 In calculating the costs of operating at the BAT AEL and at some alternate emission level you should consider the following: o capital costs of equipment purchase and installation; and o resulting change in annual operating and maintenance costs. Previously in Annex K operating costs were assumed constant over the life of the investment. Yet there are some costs which are known to be variable, such as the cost of fuels. It is now considered that costs and revenues should be presented as they are expected to occur for each year of the projects life, rather than be subject to averaging across the period. The tables presented below are designed for the averaging of costs and to be meaningful would require duplication for each year of the project life. As such the operator may choose to use the principals laid down but present their data in another form, such as a spreadsheet. However, in doing this please note that the Green Book clearly states that the costs and benefits should be expressed in ‘real terms’ as opposite to the ‘nominal’ ones. Capital costs include:  purchasing equipment needed for the emission control techniques  labour and materials for installing that equipment https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent Annex K BAT AEL Derogations v 2.1 October 2013 6  site preparation (including dismantling) and buildings and certain other indirect installation costs. Capital costs should include not only those associated with stand-alone emission control equipment, but also costs of making integrated process changes or installing control and monitoring systems. Present your capital costs as in Table 1 in Appendix 1. You should describe the limits of the activity or components to which the costs apply. For example, you should include all the components required to implement a particular technology. Where available, the cost of each major piece of equipment should be documented, with data supplied by an equipment vendor or a referenced source. Annual change in operating costs The change in operating costs of an option is the additional cost of implementing it, minus any resultant cost savings. This should include any changes in cost associated with changes in production capacity. The recurring annual costs for emission control systems have three parts:  direct (variable and semi-variable) costs  indirect (fixed) costs  recovery credits. Direct costs tend to be proportional or partially proportional to the quantity of releases processed by the control system per unit time or, in the case of cleaner processes, the amount of material processed or manufactured per unit time. They include costs for raw materials, utilities (steam, electricity, process and cooling water etc.), waste treatment and disposal, maintenance materials, replacement parts, and operating, supervisory, and maintenance labour. Guidance on the future costs of energy generation is available, see3. Indirect, or "fixed", annual costs are those are totally independent of the release flow rate and would be incurred even if the emission control system were shut down. They include such categories as overhead, administrative charges, insurance, and business rates. Direct and indirect annual costs may be offset by revenue streams generated by the sale, recycling or reuse of materials or energy recovered by the control system. These benefits should be offset by the costs necessary for their processing, storage, transportation, and any other steps required to make the recovered materials or energy reusable or resalable. The benefits should also include reduced labour requirements, enhanced production efficiencies or improvements to product quality. Operating costs should be presented as in Table 2 in Appendix 1. 3 https://www.gov.uk/government/collections/energy-generation-cost-projections Annex K BAT AEL Derogations v 2.1 October 2013 7 You should break these costs down into sufficient detail to allow the major cost influences of each operating option to be clearly demonstrated. This is particularly the case where you are arguing that the cost of implementation is higher in your specific case when compared to similar activities within the sector. In these situations you need to state clearly why these costs are higher than would be borne by typical industries making reference to any cost data in the BREF. The templates given in Appendix 1 can help you do this and are based on a general format but you may use a format more appropriate to your sector if you wish. Calculate annualised costs Your costs should be expressed on an annualised basis. This can be worked out by conventional discounted cash flow (DCF) analysis, which allows options of different timescales and cost profiles to be compared on the same basis (see Table 3). In DCF the future cash flows over the lifetime of an option are converted, or “discounted” to annualised values or “equivalent annual costs”. Table 3 – Calculating annualised costs Step Result Units Discount rate, r = decimal Assumed life of the option, n = years Equivalent annual cost factor = = Present value factor = 1 / equivalent annual cost factor = Present value cost of the option = (Annual average operating costs x present value factor) + capital costs = £ Equivalent annual cost = Present value cost of the option x equivalent annual cost factor. = £ Note that the H1 software tool can perform these calculations for you. Further advice on discount rates and life of operation is given below. Discount rates You should select an appropriate discount rate, which would usually reflect the cost of capital. Internal “hurdle” rates are not appropriate for the costing of environmental protection measures as these often assume an over-optimistic return on investment due to a need to compete with other projects. Whilst you should justify the choice of discount rate, especially if it is above this range, as the regulator we would recommend that you consider the guidance presented within the Treasuary’s Green Book4. 4 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent r r r n    1 ) 1( Annex K BAT AEL Derogations v 2.1 October 2013 8 The same discount rate should be used for all options and be expressed as a decimal when used in the calculation for equivalent annual costs factor. Where decommissioning costs are included, you should assume a lower discount rate (or justify an alternative) to these costs than that assumed for the rest of the project. This is because the uncertainty associated with estimates of decommissioning costs is such that they are more likely to be substantially underestimated than overestimated, leading to bias in the cost assumptions. A first approximation of the discount rate to use for decommissioning can be estimated by subtracting a decommissioning risk premium. Life of operation The assumed life of the option should be based on asset life. Some general guidelines on typical plant life are given in Table 4. More specific information may be obtained from the relevant BREF. Alternatively, you should provide justification for other life of operation estimates that you use. Table 4 – Typical life of operation Buildings 20 years Major components (e.g. reactor vessels, furnaces, boilers, turbines, effluent treatment plant) 15 years Intermediate components (e.g. heat exchangers, filters, handling equipment) 10 years Minor components (e.g. motors, drives, burners) 5 years Summarise your costs You should summarise your costs to compare options as in Table 5: Table 5 – Summary of costs for options Proposal Operating at the BAT AEL Capital Cost (£ ‘000s) Operating costs (£ ‘000s / year) Life of option (n) (years) Discount rate (r) Equivalent annual cost (£ ‘000s) Annex K BAT AEL Derogations v 2.1 October 2013 9 Environmental Impact of chosen options The environmental impact of proposed releases may be determined using the Environment Agency’s H1 software tool5. The tool includes a screening methodology which is used to identify those releases the impact of which we describe as ‘insignificant’. When using the software tool it for releases to air is recommended that you fully understand the determination of ‘effective height’ of the proposed release(s) as such decisions have a significant bearing on your predictions of ground level concentration. Guidance is provided in Appendix D of Annex F. Guidance on how to complete the screening methodology for air and for water within H1 is given in Annex D and F respectively and in the tool itself. You have the choice of using the software tool or undertaking a more detailed assessment of the environmental concentrations by using dispersion modelling techniques. In undertaking a detailed assessment you have the option of quantifying the impact at sensitive receptors. In determining the environmental impact of proposed releases you should consider both the short term and longer term consequences. Where releases are variable the short term assessment is particularly relevant. Maximum Allowable Concentrations (MACs) and Environmental Assessment Levels (EALs) are the basis for assessing the impact of proposed releases and these are given in Annex D and Annex F respectively. However, in making your case for derogation, the Environment Agency also requires proposed releases to be quantified in terms of the annual mass of pollutant. You should present your figures and compare them to the reporting threshold within the Environment Agency’s Pollution Inventory6. Comparing costs and benefits In making your case for derogation you should compare the costs and benefits of each operating option you have considered. In seeking to make your case for derogation you are required to demonstrate that the costs of implementing an option which delivers the BAT- AELs is disproportionately higher than the environmental benefits the option delivers. In making your case for derogation you should indicate the costs you have incurred over the last 5 years in improving the operational performance and reducing the environmental impact of your activity. The demonstration of disproportionately higher costs needs to be due to one of the following: o The geographical location of the installation; o The local environmental conditions of the installation; or o The technical characteristics of the installation. 5 http://www.environment-agency.gov.uk/business/topics/permitting/36414.aspx 6 http://www.environment-agency.gov.uk/business/topics/pollution/32272.aspx Annex K BAT AEL Derogations v 2.1 October 2013 10 Guidance on thechnical characteristics and geographical location is available via the Defra website.7 The Cross-Media BREF 8 provides some guidance on comparing environmental benefits with the costs of implementing different operating options. It is also possible to monetise the benefits of environmental improvements using an environmental damage costs approach as set out in the supplementary guide to the green book 9. Alternatively one could use a COMEAP 10 based approach for estimating impact and then converting this to a monetary value. What you should do next If you are happy that you have justified your chosen option and its associated costs you should supply this information to the Environment Agency setting out your case for why the cost of compliance with BAT AELs is disproportionately high. In presenting your case for derogation you should provide a summary, balancing the costs against the environmental performance of your proposed operation. In presenting your case you need to clearly state what it is that you propose to do and the emission limit that should apply to that release rather than the BAT AEL. Each case will need to be backed-up by cost data, with figures supported by quotations from equipment suppliers or similar. The impact of your chosen option should also be given against the impact of operating at the BAT AEL. The cost data should be given with annual variations shown across the life of the project. In the case of BAT options apprasial you should now identify your chosen option, summarising your case and balancing the costs against the environmental performance. 7 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/82617/industrial- emissions-draft-epr-guidance-parta-120312.pdf 8 http://eippcb.jrc.ec.europa.eu/reference/ecm.html 9 https://www.gov.uk/air-quality-economic-analysis 10 http://comeap.org.uk/ Annex K BAT AEL Derogations v 2.1 October 2013 11 Appendix 1 Table 1 – Presenting capital costs Break down Indicate whether component is Included in Capital Costs Yes / No Costs £ 000’s/ % of total capital cost/ Other (please specify units) Year Emission control equipment costs Break down :  Primary emission control equipment  Auxiliary equipment  Instrumentation  Modifications to existing equipment Installation costs: Break down:  Land costs  General site preparation  Buildings and civil works (e.g. Foundations/ supports, electrical, piping, insulation etc)  Labour and materials (engineering, construction and field expenses) Other capital costs:  Project definition, design and planning Testing and start-up costs  Contingency  Working Capital  End of Life - Clean up costs (note: this cost would be typically discounted to a present value) Total Capital costs Annex K BAT AEL Derogations v 2.1 October 2013 12 Table 2 - Presenting operating costs Break-down: Indicate if included in Operating Costs Yes / No Quantity (please specify units e.g. No Full time staff*, tonnes etc.) Cost/ Value per Unit Total Cost/ £ 000’s per year / % of total operating cost/ Other (please specify units) Year Additional Costs: Break-down:  Additional labour for operation and maintenance  Water/ Sewage  Fuel/ Energy costs Please specify energy/ fuel type:  Waste Treatment and Disposal  Other materials and parts Details:  Costs of any additional emission abatement equipment operation Details:  Insurance  Taxes on Property  Other general overheads Cost Savings/ Revenues: Break-down  Energy savings  By-products recovered/ sold  Environmental tax/ charge savings Annex K BAT AEL Derogations v 2.1 October 2013 13  Other Total Operating Costs nts 4 Annexes Annex 1-Emission Benchmarks Annex 2- Other Guidance Available and Glossary Annex K BAT AEL Derogations v 2.1 October 2013 14