The UK Government has introduced substantial updates to the Climate Change Agreements (CCA) scheme, reflecting a shift in emphasis to align national decarbonisation goals rather than purely energy reduction. Below is a breakdown of the major updates and implications for participants.

Transition to a New Scheme - Act Now

The current CCA scheme is set to conclude after its final Target Period 6 (TP6) reporting in early 2025. The new scheme will commence on January 1, 2026, following a "fallow year" in 2025 where no targets will be assessed.

There will be no automatic migration of existing participants, and each business must positively opt into the new scheme. Each business will need to verify that it still meets the criteria, and the Environment Agency has said it will audit a proportion of participants.

Those wishing to join the CCA scheme for the first time must confirm eligibility and apply through their sector association. New applications must be submitted between 1st May and 31st August 2025.

10 changes to be aware of

1. The baseline for performance will shift from 2018 to 2022 to account for post-COVID and Brexit realities. Operators must submit revised 2022 data.
2. All operators will now be obliged to declare their proportions of Fixed and Variable Energy consumption. Fixed energy Consumption (FEC) is the baseload of energy which must be consumed before any of the activity constituting the sites’ selected throughput is incurred. Variable Energy Consumption (VEC) is the energy directly linked to consumption. This may need to be broken down further by product group. There is no definitive information about how exactly this will work yet but will undoubtedly be challenging for almost all participants.
3. Alongside traditional energy and production data, participants must now include a summary of actions taken to improve energy efficiency or explain deviations in performance. Facilities failing to submit required reports could face penalties.
4. Targets will be set using the “Novem style" methodology, allowing differentiation by product type for facilities with production lines with diverse energy intensity metrics.
5. There will also be a compulsory move to facility-level reporting. This eliminates the "bubble" system, wherein multiple facilities could pool their performance metrics. Each facility must now meet its targets independently, potentially increasing administrative costs and compliance burdens.
6. The primary electricity factor (historically 2.8) will be updated to reflect the increased proportion of renewable energy in grid electricity since the scheme’s inception. The figure has not been released yet
7. Importantly, self-generated energy from solar PV for example will no longer be treated with the same primary electricity factor as grid electricity and going forward will have a factor of 1 applied and the carbon emissions factor will be 0 tCO2e/kwh
8. Frustratingly there is still no recognition for certificated green energy which does not incentivise businesses to make green energy choices.
9. The government has also mandated the inclusion of UK Emissions Trading Scheme (ETS) data in reporting. However, while this data must be submitted, it will not directly influence target assessments.
10. Finally, the threshold for reporting CCL subsidies has been lowered from £400,000 to £100,000 annually, significantly increasing the number of companies required to submit data. This change aims to improve oversight and ensure accurate allocation of reliefs.

What’s not changing

The longstanding 70:30 rule remains unchanged, whereby sites using over 70% of their primary energy for eligible activities can claim the Climate Change Levy (CCL) discount for their entire energy use. Annual confirmation of compliance with this rule is now mandatory.

Target setting and why you need to get involved

Energy reduction targets are set by Department for Energy Security and Net Zero (DESNZ) and they have asked the Sector Associations to collect data from a ‘representative sample’ of their members/operators. It has been stated that if the Sector Associations don’t get data from circa 70% of their CCA participants then that sector may not be able to participate in the scheme. Therefore, operator participation is critical. The data collection exercise will begin in November/December 2024.

Final targets will be agreed upon and communicated by late 2025, in time for the new scheme's start in January 2026. Once again applicants must opt into a scheme before they know what the targets will be.

Looking Ahead

While the new CCA scheme aims to increase accountability and drive greater decarbonisation, businesses must prepare for increased administrative demands and stricter reporting requirements. Organisations are advised to engage proactively in target negotiations to make sure that their business is eligible under the revamped framework.

The new CCA scheme will still be a financial benefit to Energy Intensive businesses, but it also underscores the need for careful planning and robust compliance strategies among participating industries.

If you are thinking about signing up to a Climate Change Agreement or need help completing your returns Here’s the Plan can help you navigate the complex requirements.

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