Important changes to the Climate Change Agreements scheme that businesses need to be aware of

Legislation has come into force that makes important changes to the Climate Change Agreements (CCA) scheme. 

The CCA scheme is a voluntary scheme in which scheme participants (businesses that operate energy intensive facilities) enter into agreements with the Environment Agency to reduce their energy use or emissions and, in exchange, are entitled to a discount from the Climate Change Levy (CCL). CCL is a tax on the supply of energy to businesses, introduced to encourage energy efficiency.

In this article we highlight the main changes of the CCA scheme and outline the penalties if businesses don't comply.

What are the main changes?

• An extension of the CCA scheme by adding three new target periods, which are specific timeframes during which operators of energy intensive facilities must meet agreed energy efficiency or carbon reduction targets to maintain eligibility for a CCL discount.
• CCA targets are now set at a facility level, as opposed to setting targets for a group of facilities with the same operator, with reporting and performance assessment required at this level.
• The introduction of additional annual reporting requirements relating to actions taken towards meeting the target, the UK Emissions Trading Scheme and confirmation of eligibility for the CCA scheme.

Increase in buy-out fee

Where a CCA scheme participant fails to meet their energy efficiency or carbon reduction targets, they may still able to claim a discount of the CCL by paying a ‘buy-out fee’ to the Environment Agency. The buy-out fee is calculated by the Environment Agency and is based on each tonne of carbon dioxide equivalent by which an participant falls short of meeting their target. Currently that is £25/tCO2e but will be increasing to £37/tCO2e. 

If the buy-out fee is not paid on time, the Environment Agency may issue a notice decertifying the facility and the participant would no longer be eligible to claim CCL discount.

You may appeal the amount of the buy-out fee and any notice to decertify a facility.

What are the penalties if businesses don't comply? 

Businesses that have a CCA must report their energy performance data each year to the Environment Agency by 1 May. If, following an assessment of the submitted report, the Environment Agency decides that a buy-out fee must be paid, that must be paid by the following 1 July. 

The Environment Agency regularly audits the performance of CCA scheme participants, including whether the information submitted to them is accurate.

In addition to the requirement to pay a buy-out fee, the Environment Agency may issue a penalty if the annual report is submitted late or if the report is inaccurate. Penalties have been issued up to around £10,000.

If you receive notification from the Environment Agency that you’re not complying with your Climate Change Agreement, you should act quickly and obtain specialist legal advice. 

How can Ashfords help?

Paul Collins is an environmental lawyer. He worked for the Environment Agency for over a decade until 2024, acting as the lead lawyer for the Environment Agency enforcing the climate change regimes. He represented the Environment Agency in more than 150 appeals against civil penalties, in the First-tier Tribunal and the Upper Tribunal. Therefore he's uniquely well placed to advise clients in relation to regime compliance, steps to take in response to enforcement action, and prospects of success when making representations/bringing appeals. 

For further information or advice, please contact our business risk and regulation team.