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Extension to CCA Scheme: a Boost for Energy-Intensive Sectors

Announced alongside the 2023 Budget was the news that the current Climate Change Agreement (CCA) scheme will be extended for a further two years, taking the new end date to 2027. For many businesses in energy-intensive sectors, CCAs are a vital mechanic for reducing the non-commodity element of their energy bills.

The extension also brings with it a number of changes. The CCA scheme will be opened up to new entrants, but the deadline for this is only the end of September 2023. For existing participants, eligibility criteria, sectors and rules will remain the same, but an additional reporting mechanic will be introduced in 2024 that requires reporting on potential carbon reduction and energy efficiency improvements for a site. Financial penalties for non-compliance will also increase, with businesses that fail to meet their reduction requirements required to pay a buyout free to continue to receive their discount. This will be at the cost of £25 per tonne of CO2, increasing from £18.

What is the Climate Change Levy?

Climate Change Agreements were introduced as a way for energy-intensive businesses to secure a significant discount on their Climate Change Levy (CCL). Introduced in 2001, the CCL a tax on energy delivered to non-domestic energy users in the UK. The CCL is primarily intended to encourage businesses to become more energy efficient, as it places a levy on each unit of electricity purchased from their supplier. The Climate Change Levy is calculated by your energy supplier, and automatically added to energy bills.

What is a Climate Change Agreement?

A climate change agreement is a voluntary agreement between a sector of UK industry and the Environment Agency, who administer the scheme. Businesses that sign up to a CCA pledge to reduce their energy consumption and associated carbon emissions, and in return are given a discount on the Climate Change Levy. The discount is substantial, typically 90% of the CCL.

There are two types of CCA – an umbrella agreement, and an underlying agreement. Umbrella agreements are the most widely used, and typically the simplest to enter. Umbrella agreements are held by the sector association of a given energy-intensive sector, which includes a large number of heavy industry, manufacturing and agricultural sectors. Currently, 53 trade associations hold what is known as a sector commitment with the Environment Agency, which defines the terms of their umbrella agreement. Signing up to an umbrella agreement means that a business must conform to the minimum standards laid out by their sector commitment.

An individual business within a given sector can also apply for an underlying agreement, which lays out energy or carbon efficiency targets tailored towards their operations.

How to ensure you continue to receive the discount

Organisations signed up to a CCA are required to meet the carbon reduction targets of their umbrella agreement or lay out specific targets in the case of an underlying agreement. They must then measure and report on their energy usage and emissions quarterly, providing the data to their sector association.

Once the targets in a given two-year reporting period are met, a reduced rate certificate is provided enabling them to claim the discount. Failing to keep pace with the required minimum improvements of a CCA risks a company being excluded from their sector agreement and losing this discount.

How Powerstar can help

For businesses that are currently paying the CCL in full, the best way to reduce its total cost is through improved energy efficiency. As well as saving the wholesale cost of each unit of energy that isn’t used, it will also save you the percentage addition that comes with the CCL.

For businesses currently signed up to a CCA, the ability to demonstrate ongoing progress and improvement is vital. Improving energy efficiency also plays a major role here, driving down costs as well as helping to reduce carbon emissions. A range of technologies such as on-site generation can also be vital to maintaining the standards required by your CCA. Using a battery energy storage system has the potential to play an integral role in bolstering energy efficiency and reducing carbon emissions, forming the cornerstone of an energy management strategy that is able to the get the most out of any existing technology installed on site as well as providing a range of methods for more intelligent energy management.