Deadline looms to reduce Climate Change Levy
This article was first published in The Energyst.
Businesses have only a few months left to benefit from reduced energy bills through the extended Climate Change Agreement (CCA) scheme. Richard Palmer of energy consultant Roadnight Taylor explains why even smaller business should think about joining the CCA scheme.
Having closed to new entrants in 2018, after the last budget government said it would extend the CCA scheme for two years to 2025 and reopen it to eligible energy intensive businesses. A BEIS consultation closed on 11 June with the response coming in July.
While the outcome of the consultation is uncertain, most sector associations we’ve spoken to are expecting a similar scheme with appropriate energy efficiency targets, and it is thought that applications for new entrants will likely need to be submitted by 31 August 2020. Eligible businesses can voluntarily sign up to a CCA to reduce the Climate Change Levy (CCL) charges on their electricity and gas bills. If they meet certain pre-agreed targets, the CCL is currently reduced by up to 92% on electricity bills and between 77% and 81% on other fuels.
It applies to a wide range of industrial sectors, numbering over fifty and each with energy intensive processes. Sectors range from chemicals, paper, brewing, mineral processing and ceramics to agricultural businesses such as intensive pig and poultry farming and downstream dairy processing, data centres and businesses whose primary energy demand is for cold storage.
The opportunity also allows companies to gain momentum as their businesses and associated energy demand emerge from the Covid-19 ‘demand destruction’, and forms part of the green recovery narrative. The UK’s electricity prices are the second highest in Europe and business competitiveness is critical as part of our economic recovery. It is also a key enabler into sustainability and corporate social responsibility programmes.
This extension effectively buys the government more time to put in place more radical and tighter policy changes in line with our legal commitment to a new 2050 net zero target. Furthermore, the current consultation on the future of carbon pricing, and the impact of Brexit, could influence the future of CCA agreements.
Qualifying businesses need not now have a particularly high energy spend. We’ve identified forward savings of nearly £10,000 on CCL alone, for clients with annual electricity energy spend as low as £45,000.
Some businesses will already be benefitting from CCAs, but the scheme extension provides an opportunity for those businesses not in a CCA to apply and, if they meet targets, benefit for the 4.25 years until March 2025. Whilst the carbon buy-out is likely to increase for not meeting set targets, this voluntary scheme operates in such a way as to allow for an economic trade off.
The CCL increased significantly from 1 April 2019, so the commercial opportunity is now greater – it is the UK’s only carbon tax on energy bills following the abolishment of the CRC. The higher percentage CCL discount will offer significant savings for more smaller energy users in this new application window. And, as help is at hand to assess and arrange this for you, you can you stay focused on your core operations. The benefits should be a no-brainer and qualifying, energy-intensive businesses should sign up now.
However, businesses should have an assessment carried out to determine their eligibility, to analyse the cost/benefit of applying – and to identify their appropriate sector association.
In addition, it’s important to understand how the CCA could impact any planned investment in low carbon technologies during the scheme’s duration – currently the CCA does not recognise on-site renewables contributing to meeting targets.
Only then should businesses apply to the appropriate sector association. As businesses may not fall into the most obvious sector, now is the time to determine the relevant pathway – before the window of opportunity shuts.