Background

On 16 October 2024, the Department for Energy Security and Net Zero (DESNZ) published its response to the 2023 consultation on proposals for a new Climate Change Agreements (CCA) Scheme to take effect after the current scheme expires in 2025. 

The CCA Scheme was established in 2001 with the aim of making energy savings through energy efficiency targets. Participating businesses in eligible sectors can also benefit by being subject to reduced rates of climate change levy (CCL). The scheme, which is voluntary, also helps the UK meet its Net Zero obligations under the Climate Change Act 2008 by incentivising investment in energy abatement and decarbonisation.

The existing scheme has been regarded as a success, with over 2,600 businesses across 50 different sectors participating. Climate Change Levy savings are estimated to be worth around £310 million per year, which significantly reduces the burden of energy costs on businesses. 

The new scheme is separate from the existing scheme. It will begin on 1 January 2026 instead of on 1 January 2025 to allow stakeholders time to make preparations. Sector associations and their members will have to enter into new agreements with the Environment Agency, which will take time, as well as involving new targets.

Key decisions taken by DESNZ on the new six-year scheme

  • Target Period and Certification Period dates – The start date of the first Target Period of the new scheme will be 1 January 2026 and targets are set until the end of 2030. Those meeting their obligations under the scheme will be eligible for reduced CCL rates until March 2033.

Target Periods:

  • Target Period 1: 1 January 2026 to 31 December 2026
  • Target Period 2: 1 January 2027 to 31 December 2028
  • Target Period 3: 1 January 2029 to 31 December 2030

Certification Periods:

  • Certification Period 1: 1 July 2027 to 30 June 2029
  • Certification Period 2: 1 July 2029 to 30 June 2031
  • Certification Period 3: 1 July 2031 to 31 March 2033

 

  • Existing participating facilities: All facilities, including those currently participating, must confirm that they meet existing eligibility criteria before joining the new scheme. The scheme administrator will audit a proportion of facilities to ensure compliance.
  • New Entrants in Existing Sectors: New entrants may join between 1 January and 31 August each year without a minimum period before being eligible for CCL relief. An additional entry window will run from 1 May to 31 August 2025, allowing applications before the start of the first Target Period.
  • New Sectors Eligibility: Sectors and processes seeking to join must meet specific eligibility criteria, demonstrating that: 
    • their energy costs amount to at least 10% of their production value; or
    • their energy costs amount to 3% or more but less than 10% of their production value so long as there is an Import Penetration ratio of at least 50% (i.e. what percentage of their demand is fulfilled by imports).
  • Annual Self-Certification Requirement: Facilities will need to self-certify annually, confirming compliance with eligibility criteria.
  • Buy-out Prices: The buy-out prices for each Target Period will be determined in advance, calculated using the weighted average of Climate Change Levy (CCL) rates for gas and electricity.
  • Surplus Carry-Over: Facilities may carry over surplus within the new scheme’s Target Periods, but surplus from the previous scheme will not transfer.
  • Penalties: Civil penalties by the Environment Agency will remain the same as for the current scheme, with a significant increase in audit frequency. Penalties for inaccurate information in relation to baselines or reporting will remain the greater of £500 or £25/tCO2e. HMRC may also apply penalties for tax non-compliance in line with the buy-out price. The maximum penalty will be updated in line with any changes to the buy-out price.
  • Reporting: Under the new scheme, reporting will be conducted at the facility level. Light-touch annual reporting on energy usage and emissions data will be required at the end of the first year of each two-year Target Period, though this will not be used for performance assessment.

Revised indicative timeline for scheme implementation

November 2024Letters will be sent to sector associations to collect data for target setting.
Autumn 2024Those sectors or processes who expressed an interest to join the scheme will be contacted.
1 May 2025 to 31 August 2025Application period opens for new entrants in existing CCA sectors.
June 2025

The government will issue target offer letters to sector associations. 

New sectors will be required to submit their 2022 baseline data to the Environment Agency.

30 September 2025Final target offers will be sent to sectors by DESNZ and the Environment Agency will be instructed to prepare CCAs.
October 2025Sector associations will allocate targets to participants for agreement with the Environment Agency.
November 2025Both umbrella and underlying CCAs will be granted to existing eligible sectors. 
December 2025The legislation supporting  the new scheme for existing sectors expected to come into force.
Spring 2026The legislation will be amended to allow for the new scheme to enter into force.
January 2027New sectors are scheduled to join the scheme subject to legislative requirements.

 

Final Thoughts

The new CCA scheme represents an opportunity for businesses in eligible sectors to access cost savings and advance their contributions to the UK’s net-zero targets. However, with increased audits and a shift towards facility-level reporting, businesses will benefit from early preparation to ensure eligibility and accurate reporting. Given the timeline for implementation, which begins in earnest in 2025, businesses should take this period to confirm eligibility criteria, set up effective reporting processes, and assess potential energy efficiency investments. Early engagement in the new scheme will help to maximise both financial and environmental benefits, positioning businesses for resilience in a low-carbon economy.

If you would like to discuss the points raised in this post, please contact our Environment team.

This post was written by Annalise Slocock and Matthew Pegler.