Act now or risk losing out on valuable CCL discount

There’s a new definition of what good looks like when it comes to compliance under the Climate Change Agreement Scheme (CCA) and participating organisations will need to adapt their current practices to avoid financial penalties and even risk losing their eligibility.

Introduced in 2001, CCAs are voluntary agreements between organisations and the UK Government to encourage more energy efficient behaviours. The scheme enables eligible participants to receive a discount on their climate change levy (CCL), a tax paid mainly on electricity and gas, while being measured against energy efficiency targets.

At the end of each target period, CCA holders report their progress against the targets and, if necessary, can pay a carbon buyout to mitigate failure to meet the targets outright.

With the right approach, a CCA will save businesses money in reduced green tax levies, but it can also help to embed energy efficient behaviours to deliver further savings.

A New era for CCAs

In October, Envantage attended a long-awaited meeting with the Environment Agency at the House of Commons to discuss the upcoming changes to the current phase of the CCA scheme and the new phase starting in 2026.

The current agreements will continue through the remainder of 2024, to the end of the final target period (TP6-2024), and 2025 will then essentially be a ‘free’ year of CCL discount with no targets in place, which is a welcome and perhaps unexpected bonus.

CCA Phase 3 will run from January 2026 until March 2033, with target periods until 2030. Eligibility criteria for the new scheme are expected to remain similar to the current phase, however, there are numerous changes and updates which will have implications for all.

These include changes to targets, the removal of bubbles, updates to conversion factors and carbon costs, and importantly credit for onsite generation which has been well received by many.

New winners and losers

These appear to be a collection of small changes at face value but it will create significant work to adapt to them and will distort current CCA performances for many.

2022 has been confirmed as the baseline year (currently 2018) for the new scheme. In practical terms, this may mean that some companies that are currently passing could fail and vice versa. What’s more, it could also create opportunities for prior edge cases or those who have previously exited the scheme.

Bubbles popping

Under the new scheme, all reporting is conducted at facility level, with the removal of ‘bubble’ agreements where companies can group sites under one target. For some organisations, this will mean that individual sites may now fail to meet targets as standalone sites and face buyout costs, where previously they were included within a bubble’s target achievement.

Window opening for new sites

In May 2025, the scheme will reopen to new sites that are not currently covered by a CCA. If your organisation has expanded, it is vital that you don’t miss this short window of opportunity to secure these savings.

Government hawkish on action ?

A 2022 government study suggested that half of CCA holders have done nothing differently despite energy efficiency incentivisation. The Department for Energy Security and Net Zero is under pressure to show that the scheme is providing value for money to taxpayers.

Furthermore, the government has not been auditing at their proper run-rate due to IT issues and will be seeking to remedy this by taking a more rigorous approach moving forward. It’s imperative that current CCA holders are audit ready.

Staying on target – are yours fit for purpose?

Under the new scheme, targets will be set up in a different way using the NOVEM method of energy allocation. To date, this method has been typically adopted to establish more meaningful targets by facilities that have several different product types, with varying energy intensities per unit of production.

Going forward, it is highly recommended that all CCA holders evaluate their production activities during 2022, at present and in the future, and consider how more sophisticated target reporting might be incorporated into their organisation.

As a minimum, all new targets will be set up allocating fixed and variable energy consumption, rather than total energy use, drawing on the NOVEM method.

With new targets currently being negotiated with the Environment Agency, we can certainly expect it to become more challenging for CCA holders to achieve compliance, and, with carbon buy-out costs set to change, there will be a more considerable financial burden to passing or failing. That’s why now is the time to act.

With just over 12 months to go until the new scheme comes into effect, it is important to prepare now and ensure your organisation is in the best position to benefit from the scheme.

Getting on the right track with CCAs

• Companies in the current scheme will be responsible for confirming their eligibility status for the new scheme and have suitable evidence packs readily available. Given the shifting parameters of the new scheme and the government’s intention to undertake more auditing and enforcing facilities pay back incorrectly claimed CCL discount, this must be given proper consideration to avoid any risk of losing the valuable benefits that come with being a CCA holder.
• Don’t rely on past performance – the parameters of the CCA scheme have changed, and you cannot assume that what you have done in the past will ensure future compliance.
• Set up your targets correctly – taking the time to consider your current and future production mix and energy intensity, will allow you to establish the best target make up for the next phase.
• Conduct energy efficiency audits to identify new opportunities to make savings. This is especially important in light of the changes to ‘bubble’ agreements and the introduction of what are likely to be tougher targets and higher carbon costs.
• Re-engage with staff to ensure they understand energy management procedures.
• Evidence packs are essential – with an increasing emphasis on reporting requirements, the quality of your supporting data and evidence is even more important.

With increasingly onerous targets and a greater expectation for organisations to evidence their progress on energy efficiency, the overriding message on CCAs is that the new scheme does not mean ‘business as usual’.

The Envantage team are here to help. If you have any questions on CCAs or any other aspect of carbon or energy, don’t hesitate to contact the Envantage team.