Energy efficiency and Greenhouse Gas (GHG) values

A2.39 This is a high-level guide to valuing Greenhouse Gas (GHG) emissions and energy use for appraisal purposes. BEIS publish more extensive guidance, background, rationale and relevant data tables that should be used.

A2.40 The steps given below are based on a change in fuel or energy use. Most interventions will have other objectives and will involve energy use as part of a wider effect. In both cases, total energy use and total GHG emissions should be quantified and costed, using the data tables referred to above and included with other costs.

A2.41 Multiplying the fuel use in each year by the Long Run Variable Cost (LRVC) for that fuel will give the societal value in fuel usage for that period (excluding GHG emissions, which are calculated separately):

Social cost of energy = fuel consumption x Long Run Variable Cost (LRVC)

Step 1 - quantify energy use or efficiency. Identify the fuel or electricity consumption for each year, distinguished by type of fuel and the sector in which the changes are incurred (e.g. residential, commercial, industry). Changes should be measured in megawatt hours (MWh).32

Step 2 - value energy or fuel use. The LRVC reflects the production and supply costs of energy which vary according to the amount of energy supplied. They will vary according to the type of fuel, sector being supplied and prevailing fuel prices. Low, central and high LRVC assumptions for different fuels and sectors are published on the BEIS webpages in data tables.

Step 3 - convert energy use into GHG emissions. The formula below shows how to quantify GHG emissions for a given energy use. This uses the energy changes estimated in 'Step 1', converted into a GHG measure. An emission factor is used to estimate the amount of GHG emissions from burning a unit of fuel. These vary by fuel type and reflect the mix of fuels required for electricity. The global warming potential of GHG emissions is measured as the equivalent amount of carbon dioxide (CO2) that would give this warming. The standard unit of account is equivalent tonnes (tCO2e) or kilograms (kgCO2e) of carbon dioxide. Various emission factors can be found in the data tables. For electricity, the consumption-based long-run marginal emission factor should be used for changes in energy demand. The generation-based emission factors are only used for energy production rather than energy demand. Energy production is generally greater than energy demand to account for losses during the transport of energy to final consumers.

GHG = fuel use x emissions factor

Cost of GHG = GHG (kgCO2e) x value of carbon

Step 4 - value to society of emissions. GHG values are based on the economic cost of mitigating a unit of carbon. The carbon value will vary depending on the sector from which the emissions occur:

O the traded sector is defined as those activities covered by the EU Emissions Trading System (EU ETS) which sets a market price for carbon. It generally covers all power generation, many energy-intensive industries, and intra-EU aviation. Therefore, all electricity consumption is covered by the EU ETS and is in the traded sector.

O the non-traded sector - includes all other energy consumption, including all household and non-aviation transport fuel use (excluding electricity).

A2.42 Carbon value assumptions for the traded and non-traded sectors are available for 3 different scenarios (low, central, and high) to enable sensitivity analysis. The values can be found in the data tables. Further detail on how to map energy use to the traded and non-traded sectors is available in the BEIS online guidance.

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32 Conversion factors for converting between calorific units of measurement (i.e. tonnes of oil equivalent, calories, therms, joules, or watt hours) are available in Annex B of the online guidance "Valuation of energy use and greenhouse gas emissions for appraisal " available on the Business, Energy and Industrial Strategy webpages. Conversion factors for converting volume-based or weight-based measurements into calorific units of measurement (which will vary according to the fuel) can be found in Table A1, Annex A, of the Digest of UK Energy Statistics.