The UK Governments New Climate Change Agreements: What You Need to Know

In an effort to bolster climate action and support energy-efficient practices among businesses, the UK government is set to roll out amendments to the Climate Change Agreements (CCA) scheme. This update, detailed in the Climate Change Agreements (Administration and Eligible Facilities) (Amendment) Regulations 2025, aims to extend the scheme and enhance its effectiveness. Here’s a breakdown of what these changes mean for businesses and the environment.

What is the CCA Scheme? The CCA scheme is a voluntary program where businesses commit to reducing energy use or emissions. In return, they receive reduced rates on the Climate Change Levy (CCL), a tax on energy supplied to non-domestic users. This initiative not only encourages energy efficiency but also supports the UK’s broader goals of affordable, secure energy and decarbonisation.

Key Changes in the 2025 Amendments:

1. Extension and New Targets: The scheme will introduce three new target periods from January 2026 to December 2030, extending reduced CCL rates until March 2033. Businesses will need to meet specific energy efficiency or carbon reduction targets to maintain eligibility for tax discounts.

2. Facility-Level Targets: Unlike previous group-based targets, the amendments shift to facility-level targets, meaning each facility must report and meet its energy goals individually. This change aims to simplify the scheme and provide a clearer picture of energy usage across sectors.

3. Buy-Out Fee Adjustments: If businesses fall short of their targets, they can pay a buy-out fee to retain their CCA certification. This fee will start at £37 per tonne of CO2 equivalent in 2027, up from £25 in the previous period. The fee will adjust to stay relevant with CCL rates, motivating businesses to enhance their energy-saving efforts.

4. Updated Reporting Requirements: The scheme introduces new annual and interim reporting obligations, requiring businesses to detail their progress towards meeting targets and confirm eligibility. These updates respond to findings from a 2020 evaluation that called for more targeted and effective scheme operations.

5. Reflecting Modern Energy Metrics: The amendments update the Primary Electricity Factor and Carbon Emission Factors, aligning them with current energy metrics to better reflect grid efficiency and decarbonisation trends.

Consultation and Feedback: The government sought input through consultations, with participants broadly supporting the new 6-year scheme. While there were concerns about administrative costs, the introduction of standardised reporting templates aims to mitigate these burdens.

Impact and Monitoring: Though a full impact assessment isn’t required due to the scheme’s tax nature, a proportionate analysis was conducted. The scheme is expected to continue attracting businesses due to the significant tax benefits, despite the increased buy-out fee. Monitoring will focus on ensuring the scheme’s objectives are met without imposing undue burdens on small businesses or the public sector.

In summary, these amendments to the CCA scheme reflect the UK government’s ongoing commitment to fostering a sustainable and energy-efficient business environment. By extending the scheme and introducing more precise targets and reporting, the government aims to drive significant progress in reducing industrial carbon emissions, supporting both the economy and the planet.