Consultation on new scheme for Climate Change Agreements (CCAs)

The Department for Energy Security and Net Zero (DESNZ) consultation on a new 6-year Climate Change Agreements scheme is open until 14 February 2024. This article outlines the proposals and considers what the proposals may mean for participants in the existing scheme and future participants in the new scheme.

What is the Climate Change Agreements (CCA) scheme?

The current CCA scheme enables its participants, whose business is energy-intensive, to obtain a discount on the Climate Change Levy (CCL) tax by improving their energy efficiency or reducing CO2 emissions. The scheme is scheduled to run until 31 March 2025 with eligibility for reduced rates until 31 March 2027.

CCAs are agreements entered into between scheme participants from certain industry sectors and the Environment Agency, who is the "CCA administrator". There are two types of CCA – umbrella agreements and underlying agreements:

• Umbrella agreements contain the energy efficiency targets for each sector and list the processes that are eligible for a CCA.
• Underlying agreements are held by site operators within a particular sector and contain the energy or carbon efficiency targets applicable for their type of operation, as per the umbrella agreement.

Operators with underlying agreements are required to monitor and report the energy consumption of their sites against specified targets for each target period and meet these targets to remain certified to receive the discounted CCL rates.

What are the proposals?

The DESNZ consultation makes proposals for a new 6-year CCA scheme to begin in 2025. The scheme will introduce three new target periods for measuring energy consumption, respectively followed by three new certification periods, proposed to run from the dates shown in the table below.

The consultation sets out aspects of the current scheme that will be retained and new proposals for the future scheme.

Many fundamental aspects of the current scheme are proposed to be retained. The new scheme will continue to provide reduced CCL rates for participants that meet their obligations, with certification periods for the reduced rates following on from target periods. The scheme will also continue to be administered throughout the UK by the Environment Agency.

The consultation is seeking views on various new proposals, including that: 

• New entrants to the scheme will be able to apply to enter the scheme at any time, however new entrants that join partway through a target period will be required to complete one target period before being certified to receive reduced rates of CCL.

• Operators will be required to make an annual confirmation to the scheme that their facilities continue to meet the eligibility thresholds.

• Facility level data would be gathered from all participants to be used to inform target setting for the scheme.

• The baseline year for the new scheme would be updated to 2022.

• The primary electricity factor, which is used for grid electricity consumed to account for the primary fuel used to generate the electricity, should be updated before each target period.

• Participants would be required to provide evidence of energy efficiency and decarbonisation potential within the next six years on an annual, rolling basis.

• The buy-out fee, which allows those who do not meet targets to remain certified to receive the CCL reductions, will be calculated using a formula to take into account various factors and will be reviewed ahead of each new target period.

What do the proposals mean for existing participants and new participants? 

The proposals include that existing participating facilities will not automatically be transferred to the new scheme. The administrator will assess each facility to ensure they meet existing eligibility criteria under the sector definitions. For new applicants to the scheme, applications will be able to be made to join the scheme from 1 May 2024.

Sectors that would like to make a proposal to be added to the new scheme, or for a new process to be added to the scheme, will continue to be assessed for eligibility in accordance with the existing "import penetration" thresholds and are encouraged to initiate the process of gathering data to determine if they meet the relevant criteria.

The consultation is seeking views on the proposals from various organisations including sector associations, businesses which participate in the scheme and operators of facilities not currently in the scheme that may be eligible. Further detail on the proposals can be found here.

If you would like advice or guidance in relation to the current CCA scheme, or the new scheme proposals, please contact Christian Silk on the details below.