The announcement earlier this year that the Climate Change Agreement (CCA) scheme is set to be extended following consultation, will no doubt come as welcome news for those businesses who already have CCAs in place. However, with further reform of the scheme proposed, it’s not all good news for existing members. As we await results of the recently closed consultation, we look at what the proposed changes are, and how you can maintain the maximum benefit from your CCA for the entire scheme period.
Introduced as a mechanism to reduce energy use and CO2 emissions, the scheme was due to run until 31st March 2023, when the CCL discounts based on the current agreements will end. However, in order to support energy intensive businesses to operate in a more sustainable way while remaining competitive, Rishi Sunak used his first Budget to announce that the CCA scheme would reopen to new applicants and would be extended until 2025.
With 25% of the UK’s greenhouse gas (GHG) emissions coming from business, the move will also form an integral part of the Government’s fight against climate change, helping us to meet our ambitious net zero target.
The proposed extension will allow existing CCA participants to benefit from a further two-year target period – known as TP5. Eligibility criteria remain unchanged, so as long as you still meet the qualifying criteria your business can continue within the scheme.
Existing members will, up until now, have been asked to monitor their performance against a 2008 baseline. The Government is proposing that this moves to a 2018 baseline going forward, as well as proposing that any banked surplus from Target Periods 1 – 4 will not be available for use against Target Period 5. BEIS commented, “We are clear that any extension should result in additional energy/carbon savings.”
This re-baselining will mean that businesses who have managed to achieve their targets and therefore bank surplus carbon won’t be able to transfer the surplus across in future years. So, they are effectively losing the advantage they have gained by becoming more energy efficient – and will have more pressure on achieving their targets.
Buy Back Costs
Those who don’t meet their efficiency targets will still be able to pay a buy-out fee, so that they can continue to receive their CCL discount. However, the price of buy backs looks likely to rise. This is currently set in legislation at £14/tonne of CO2 equivalent by which the target has been missed, however it is proposed in the latest BEIS consultation to increase this to £18/tonne.
CCA Still Good Value
Despite these changes, the CCA scheme remains good value for energy intensive users – it is estimated that this extension will save businesses around £300m each year. The annual value of CCL relief is set to increase further in the next few years with CCL rates due to soar. Firstly, from April 2019, CCL rates increased due to the end of the CRC scheme, with the costs being incorporated into the CCL levy. In the Autumn 2018 budget, it was announced that the CCL rate on gas will be increased in future years to reach 60% of the electricity rate by 2021. To mitigate this, the maximum relief percentage level was increased to 93% on electricity and 78% on gas from April 2019.
Agreements Require Action
Savvy businesses will be putting plans in place now to ensure they make steady progress towards their target. There are a range of different targets businesses can work towards under a CCA, but they all involve either carbon or energy reduction. This means that any measures businesses put in place with the aim of achieving their targets should also help to boost their sustainability credentials, and demonstrate that they are playing their part in helping the UK to reach its net zero target. Those that are required to participate in the Streamlined Energy and Carbon Reporting (SECR) scheme should also be able to include any carbon or energy reduction measures they take to achieve their CCA in their SECR reports.
Seeking Support in Challenging Times
Of course, for the many organisations that are facing reduced workforces and increased workloads due to Covid-19, ensuring you meet your CCA obligations can be a challenge.
In order to maintain maximum benefits of your CCA, you will need to ensure you qualify for the full CCL discount, meaning you will have to successfully complete your 70/30 evaluation. If you need help in achieving CCA compliance – whether that is performance monitoring, 70/30 reassessment, or reassessing what is possible from an energy efficiency perspective, get in touch. We can bring you new techniques and opportunities as part of our consultancy.
Find out more about our CCA service here.