Climate Change Agreements consultation to extend to March 2025

Understanding climate change agreements transcript

Hello, I’m Phil Ager, managing director at Control Energy Costs. I’m here today to talk about Climate Change Agreements.

It’s a cost saving scheme you may know about but might have dismissed because you thought it didn’t apply to you, or maybe you’d heard the applications had closed.

A Climate Change Agreement or CCA, is a formal agreement whereby certain industries can pay reduced Climate Change Levy or CCL.

CCL is a tax on energy supplied to non-domestic consumers and has been around since April 2001. It is charged against each kWh of energy used and over time has slowly increased.

As of 1^st April 2020, the current rate of CCL for electricity is 0.811 pence and for gas is 0.406 pence. These rates are reviewed annually and have been steadily going up.

Now, if a typical commercial electricity supply uses around 1,000,000 kWh per annum, then it follows that they will pay over £8,000 in CCL charges between 1^st April 2020 and 31^st March 2021.

The government’s view is that by directly taxing usage through CCL, businesses are incentivised to consider energy efficiency measures which will ultimately reduce carbon emissions.

So, that’s the background to CCL, but the financial impact can be reduced for certain business sectors, and this is where CCAs come in.

The government recognizes that certain energy intensive users might become uncompetitive internationally if they were charged the full rate of CCL. So, it was agreed, a reduction would be made available in return for energy efficiency targets being met.

That way, the UK can meet its carbon reduction targets and allow businesses to remain competitive.

So, what are these benefits?

Well, a qualifying supply can enjoy up to 92% CCL relief on its electricity usage and 81% relief on its gas. In monetary terms, if I use the example I gave earlier, that £8,000 CCL bill will be reduced to just £560.

As you can see, the benefits are well worth having, so let’s look at which industries are eligible.

The main ones are steel, ceramics, chemicals, food and drink along with glass, paper, plastics and agriculture.

In fact, there 53 sectors altogether so the scope is quite wide ranging and the cost savings significant but, as I’ve said, there are energy efficient targets that have to be met.

Each industry sector has its own set of targets, and these vary depending on what was agreed with the Department for Business, Energy and Industrial Strategy or BEIS.

The food and drink sector, for example, has a target of an 18.0% reduction against an agreed base year, whereas the aluminium sector has just a 2.8% reduction target.

I’ve mentioned the benefit and the expectations but what about the penalties?

Well, quite simply, if you miss your target, you are obliged to cover the balance by purchasing carbon credits. This is done by converting consumption shortfall against the agreed target to a carbon tonnage amount.

To give you an example, if you missed you target by the equivalent of 100 tonnes, you would be expected to purchase 100 tonnes of carbon. Today’s price for carbon is £14 per tonne, so, your penalty would be £1,400. The aim is to incentivise, not penalise, so by exceeding your target, you can bank the credits into the next target period.

Each target period is over two years, the current one started on 1^st January 2019 and will run through to 31^st December 2020.

That’s all well and good, but why I am discussing this now?

Well, the government has said you have until this deadline (30^th September 2020) to complete your application, and, if you are successful, the relief will be available from 1^st January 2021.

So, what do you need to do?

You could start by contacting us. We have the experience of collating all the information required to complete an application, as well as providing the ongoing reporting required to ensure continued compliance.

Why not get in touch via live chat, on our website, email, or phone.