Government Extends Climate Change Agreement – What It Means for Businesses

The Climate Change Agreement (CCA) scheme, which was first introduced in 2001, aims to reduce energy consumption and carbon emissions by setting energy efficiency goals. It also seeks to lower energy costs for eligible industrial sectors by providing substantial discounts to participating businesses on their Climate Change Levy (CCL).

The CCA is a voluntary UK government energy efficiency scheme. Participants in the scheme receive a discount on the CCL in exchange for agreeing to work towards energy efficiency improvement and carbon dioxide (CO2) emissions reduction targets.

Is the CCA scheme open to new applicants?

Yes, the submission window will open again from 1st May to 30th September 2023, for new entrants, and existing eligible businesses who wish to add additional facilities. CCL relief will be applied from the 1st January 2024, with 2024 becoming a target period. During the target period, all scheme participants will need to demonstrate a reduction in carbon intensity in line with targets set by their industry trade association.

What are the current rates of the CCL?

The UK government has announced the CCL rates for 2024/25. As you can see from the chart below, the CCL rates for gas have risen by 281% since 2018/19, and are now on par with the charges for electricity. Whilst the rates published for 2024/25 fulfil the 2016 budget promise to equalise the rate of CCL for gas and electricity, it is wholly possible that the CCL rate for gas could continue to rise, as pressure to reduce the use of carbon-intensive energy sources, such as natural gas continues. With this upward trend in rates, businesses have an even stronger incentive to consider joining a CCA to receive relief from the CCL rates.

What does it mean for businesses already in a CCA?

For businesses who are already in a CCA with no additional facilities to add, the CCL relief will continue until the 31st March 2027. They should also note that 2024 has been determined as a target period and should prepare to demonstrate reductions in carbon intensity. No surplus CO2 can be carried forward from the previous target period to the new target period, and the penalty for falling short of targets will increase from £18/tCO2e to £25/tCO2e.

When will eligible businesses get the reduced rates?

Successful applicants will be eligible to claim the reduced rates of the CCL from the 1st January 2024 or from the date when the industry trade association approves the proposed agreement later than the 1st January 2024. The amount of relief will be linked to consumption, but for example, a site using a combined 3GWh of gas and power per year would expect to see savings of between £66,500 and £69,500 over the duration of the scheme extension.

When should you start the application process?

With the 30th of September deadline for new entrants, there’s less time than you’d think to complete the work required for the application. A typical submission can take 4 to 6 weeks to prepare, including the time required by the trade association to review the application and ensure targets are correctly set. So don’t leave it too late to start your application or risk missing the deadline and not getting approved.