Corporate report

Climate Change Agreements: biennial progress report 2017 and 2018

Updated 31 October 2023

1. Executive summary

Climate Change Agreements (CCA) are voluntary agreements made between industry and the Environment Agency. They give businesses with energy intensive processes a significant discount on the climate change levy (CCL). The CCL is a tax on energy use in industry, commerce and the public sector. In return participants sign up to energy efficiency improvement targets agreed between government and sector associations.

The Environment Agency administers the scheme on behalf of the Department for Business, Energy and Industrial Strategy (BEIS) for the whole of the UK.

This is our third biennial report. It sets out the energy efficiency improvements and emission reductions achieved by operators and sectors against their CCA targets for the third target period (TP3). This period is from 1 January 2017 to 31 December 2018.

There are 2 mechanisms for operators who did not meet their targets to remain compliant with the scheme and hence eligible for the reduced rates of CCL. These are the:

• use of banked surplus accrued through over performance during previous target periods
• payment of a ‘buy-out fee’ of £14 per tonne carbon dioxide equivalent (CO2e)

In summary in TP3:

• 36 (73%) of the 49 active sectors met their TP3 targets; 4 sectors are not currently active
• 1,789 (52.4%) of the 3,416 target units for which operators provided data met their TP3 target – a ‘target unit’ is made up of one or more facilities covered by a single agreement
• the operators of 233 target units used some or all of their banked surplus to fully offset under-performance in TP3, 178 used all of their surplus, and were offered a buy-out fee to make good the remainder of their under-performance in TP3 and 1,216 were offered a buy-out fee to make good the whole of their under-performance in TP3
• a total of 45.0 million tonnes of CO2e emissions were reported by operators to be covered by the CCA scheme in TP3
• unadjusted emissions reduced by about 6.1 million tonnes of CO2e, a fall of 12%, measured against the base year (mostly 2008) – if base year emissions are adjusted for changes in operations, TP3 emissions reduced by 9.0 million tonnes CO2e
• there was a net over-performance against targets of 3.1 million tonnes of CO2e – if all operators met their targets, emissions should have reduced by 5.9 million tonnes of CO2e, but they actually reduced by 9.0 million tonnes of CO2e

The figures in this report use the information submitted by operators. Our report does not consider the extent to which the changes in emissions can be attributed to participation in the CCA scheme or other drivers. A range of factors including commercial incentives may affect participants’ energy use and emissions.

2. Overview of the CCA scheme

2.1 Background

The voluntary CCA scheme is intended to encourage a reduction in energy use and carbon dioxide emissions. Participants accept stretching energy efficiency or carbon reduction targets that makes them eligible to pay a discounted rate of climate change levy included in their electricity and fuel bills. At 1 April 2019 the CCL discount was a 93% reduction on the rate for electricity and a 78% reduction on the rate for gas and other taxable commodities.

2.2 Individual climate change agreements

A climate change agreement is a combination of an:

• umbrella agreement between a sector association and the Environment Agency
• underlying agreement between an operator and the Environment Agency

There are 53 umbrella agreements. They each include a sector commitment of an energy efficiency improvement or carbon reduction target for the sector. These targets were agreed between sector associations and the former Department of Energy and Climate Change (DECC), now part of BEIS.

Underlying agreements identify the operator and the facilities covered by the agreement. They include energy efficiency or carbon reduction targets that apply overall to the facilities covered by the agreement, collectively known as a ‘target unit’.

2.3 Climate change agreement targets

Both types of agreement cover 4 target periods, each 2 years long, running from 1 January 2013 to 31 December 2020. The targets are set against a base year which is specific to each sector and target unit. Where possible we used 2008 as the base year, but if data was not available we used a more recent year.

Target units that meet or exceed their target remain eligible for the CCL discount. Those that do not meet their target must use any banked surplus accrued through over-performance during the first two target periods (TP1 and TP2) to make good their performance. If they still do not meet their target the operator may choose to pay a fee to government if they wish to continue to claim the CCL discount. For TP3 the ‘buy-out’ fee was increased to £14 per tonne of CO2e by which they missed their target.

See more information on the CCA scheme.

2.4 Biennial progress report

We publish a report of the energy efficiency improvements and emission reductions achieved by operators and sectors against their targets every 2 years. This document is the report for TP3, 1 January 2017 to 31 December 2018. It is published in line with regulation 9 of the Climate Change Agreements (Administration) Regulations 2012 and takes account of the government’s response to its consultation on the publication of target unit performance data.

This report only covers energy use that is subject to a CCA, which may not be all the energy used in facilities. We took the data from operators’ reports that were submitted to us by 1 May 2019 and buy-out fees received by 1 July 2019. Any later corrections or payments are not included in this report. The data used is supplied by the participating operators who are responsible for the quality of their submissions.

This report comprises:

• data tables containing information for each target unit and sector published on data.gov.uk
• a narrative report (this document) summarising the scheme, sector and target unit performance.

3. Significant events affecting CCAs

3.1 Government reviews and changes to policy

In April 2019 the main rates of CCL increased, primarily to reflect that there were no future phases of the CRC Energy Efficiency Scheme. The discount available to CCA participants also increased to ensure fiscal neutrality, making the scheme more valuable to potential participants. Further changes to the CCL rates are due in coming years to rebalance the main rates of CCL for electricity and gas to incentivise more efficient energy and carbon savings.

In December 2016, government announced an increase in the buy-out fee in line with inflation from £12 to £14 per tonne CO2e with effect from TP3. In 2017 we issued revised agreements to all sector associations and operators incorporating this change.

From July 2017, to comply with new EU rules, companies participating in the CCA scheme for whom the value of the CCA discount exceeded €500,000 a year in the sterling equivalent, were asked to report the value of the discount to HM Revenue and Customs (HMRC). HMRC are required to report this data to the European Commission who publish the data in bandings on their website, this is in the interest of the transparency of state aid in the EU.

3.2 Closure to new entrants

The rules in the scheme’s agreements do not allow facilities to join the scheme during the final target period and in the last 2 months of all target periods. This effectively closed the scheme to new entrant facilities from the end of October 2018 but allows new operators to take over existing CCA facilities.

We publicised this closure to sector associations throughout the year before October 2018. Sector associations responded and added 1,502 facilities to the scheme in the period 1 January 2018 to 31 October 2018. This compares to 312 added during the whole of 2017. We intend to audit a sample of these new entrants along with existing participants. This will help ensure the information used to determine eligibility and to calculate their targets is accurate and complete.

3.3 Data corrections

Our first 2 biennial reports covering 2013 and 2014, and 2015 and 2016, were ‘snapshots’ of the scheme’s performance at that moment in time. Since the reports were published some data was corrected by operators and some from errors found in our audits of participants.

We applied the corrections to individual target units, adjusting banked surplus and buy-out fees as required. However, following our original intentions, the data in the earlier reports remains unchanged and has not been updated to reflect later corrections. For TP3 and TP4 we are simplifying the correction process to reduce the administrative burden from these increasingly complex amendments.

3.4 Appeals

The only appeal heard during TP3 by the First-tier Tribunal concerned TP2 buy-out fees. The appellant challenged our refusal to vary the percentage value of their target but the appeal was dismissed by the Tribunal.

4. Summary of TP3 results

4.1 Reporting

The gradual reduction in the number of target units and facilities in the CCA scheme noted in previous reports reversed in TP3. Between 1 January 2017 and 31 December 2018, 400 facilities left and 1,814 facilities joined the scheme.

We expected a performance report for each of the 3,448 target units covering 9,219 facilities that were in the scheme at the end of TP3. By the reporting deadline of 1 May 2019 we received 3,416 reports (99.1%).

The operators of 23 target units did not report and terminated their agreements. A further 9 did not report but were still in the scheme. We have not included data for these 32 target units.

The lime, slag grinding, mineral wool and gypsum products sectors did not have any operators in the scheme. No reports were required for TP3.

4.2 Meeting target unit targets

Overall 1789 (52.4%) target units covering 3,205 facilities met their target in TP3. In comparison 1,678 (53%) target units (3,566 facilities) and 1,743 (51%) target units (3,063 facilities) achieved their targets in TP2 and TP1 respectively.

For the target units that met their target in TP3 the:

• average surplus gained per target unit was 3.4 thousand tonnes of CO2e (3.4 thousand tonnes in TP2 and 2 thousand tonnes in TP1)
• maximum surplus for a target unit was 709 thousand tonnes of CO2e (506 thousand tonnes in TP2 and 170 thousand tonnes in TP1)
• total surplus gained for TP3 was 6.1 million tonnes of CO2e (5.7 million tonnes in TP2 and 4.0 million tonnes in TP1)

In total 1,627 (47.6%) target units covering 5,982 facilities did not meet their TP3 targets. In TP2 1,475 (47%) target units and in TP1 1,647 (49%) target units did not meet their targets. For the target units that did not meet their TP3 target:

• 233 used some or all of their surplus banked from TP1 and 2 to fully offset under-performance in TP3
• 178 used all of their surplus banked from TP1 and 2, and were offered a buy-out fee to make good the remainder of their under-performance in TP3
• 1,216 were offered a buy-out fee to make good the whole of their under-performance in TP3
• the average under-performance was 1.9 thousand tonnes of CO2e (1.9 thousand tonnes in TP2 and 1 thousand tonnes in TP1)
• the maximum under-performance was 278 thousand tonnes of CO2e (342 thousand tonnes in TP2 and 62 thousand tonnes TP1)
• the total under-performance was 2.9 million tonnes of CO2e (2.5 million tonnes in TP2 and 2.0 million tonnes in TP1)

For all target units and across all 3 target periods an aggregate of 14.6 million tonnes CO2e surplus was banked.

4.3 Use of the buy-out fee

The operators of target units that missed their targets had the opportunity to use the buy-out mechanism.

Table 1: Use of buy-out mechanism

	TP1	TP2	TP3
Number of target units in receipt of buy-out fee notice	1,627	1,321	1,394
Number paying buy-out fee	1,420	1,216	1,245
Total value of buy-out fees paid by 1 July (million pounds)	£22.1	£22.2	£28.9

The increase in TP3 is due in part to the increase in the rate of buy-out fee from £12 to £14 per tonne CO2e. If the fee had remained at £12 then the total TP3 buy-out would have been £24.8 million.

In total, 8991 facilities were certified for the fourth certification period on 1 July 2019. In TP2 7,920 facilities were recertified on 1 July 2017 and in TP1, 7,522 facilities were recertified on 1 July 2015.

4.4 Overall changes in emissions and energy use

We calculate changes in emissions and energy use by comparing a target unit’s CO2e emissions and energy use in the target period against those for their base year. Overall changes are the sum of all the results for individual target units. We make these calculations with or without adjustment for throughput.

Unadjusted calculation of changes

The simplest way of calculating the changes is to double the energy and emissions data in the base year and subtract the corresponding data reported for the 2-year target period. This is presented in table 2, which shows an overall unadjusted emissions reduction of 6.1 million tonnes of CO2e.

This means that emissions for the 2 years of TP3 were 6.1 million tonnes of CO2e below what they would have been had they remained at the same level as in the base year. The corresponding energy savings are 29,023 gigawatt hours (GWh).

Table 2: unadjusted changes in emissions (million tonnes CO2e)

	TP1	TP2	TP3
Base year emissions	26.0	25.2	25.5
Base year emissions x 2	52.0	50.4	51.1
Target period emissions	45.7	45.5	45.0
Emissions reduction	6.2	4.9	6.1

Although this approach is easy to calculate, it does not compensate for changes in throughput that may have occurred compared to the base year. Nor does it correct for target units that joined the scheme part way through and have less than 2 years’ data for the target period.

Adjusted calculation of changes accounting for throughput effects

Most target units have ‘relative targets’. These express energy consumption with reference to a measure of activity, for example kilowatt-hours per tonne of product produced. We describe this measure as the specific energy consumption (SEC).

We know the SEC for the base year and the target period. Therefore we can calculate the energy use and emissions that would have occurred in the base year had there been the same level of throughput as in the target period. Using this adjusted information takes into account throughput changes since the base year. It also compensates for target units that were not in the scheme for the full 2 years of TP3. It gives a better assessment of changes in energy efficiency.

In table 3, this adjustment has been made for all target units with relative targets. However, it has not been made for the small number of target units with absolute targets. The results show an overall adjusted emissions reduction of 9.0 million tonnes of CO2e. The corresponding energy savings are 45,653 GWh.

Table 3: adjusted changes in emissions (million tonnes CO2e)

	TP1	TP2	TP3
Adjusted base year emissions	51.4	53.3	54.0
Target period emissions	45.7	45.5	45.0
Actual reduction in emissions	5.6	7.8	9.0
Target emissions reduction	3.6	4.6	5.9

4.5 Sector performance

Every umbrella agreement specifies a sector commitment target for the sector for each target period, relative to the base year. We determine whether a sector achieves its target by comparing its actual achievement against a calculated ‘sector improvement target’ derived from the sector commitment. This target differs to the original sector commitment for the target period because it takes into account the changes in composition of the sector throughout TP3. These include:

• target units and facilities joining or leaving a sector
• corrections to base year data
• adjustments to target unit’s targets due to unexpected power supply disruptions
• throughput reductions greater than 10% for target units with absolute targets

The sector improvement targets are predominantly within 1% of the sector commitment. Based on the sector improvement targets, 36 (73%) of the 49 sectors met their targets. The 4 sectors that do not currently contain any target units are not included. This compares to 40 of the 49 sectors in TP2 and 40 of the 51 sectors in TP1 that met their targets.

In contrast to the position for operators holding underlying agreements, there are no direct consequences for sectors over or under-performing against their targets. The sector targets provided a basis for setting individual targets in the underlying agreements.

We publish a summary of each sector’s performance in a data spreadsheet that accompanies this report on data.gov.uk. It includes energy consumption and CO2e data for the base year and for TP1, 2 and 3. However, we do not report energy consumption for those sectors with fewer than 3 operators to ensure that we do not disclose individual operator’s commercially sensitive information.

4.6 Individual target unit performance

The operators of all target units in the CCA scheme on 31 December 2018 were required to report their performance. This was against their targets for the third target period. They had until 1 May 2019 to report.

Operators reported their target unit’s energy consumption and throughput data (the quantity of product or output produced). They did this from the start of TP3 (1 January 2017) or, for new entrants, the date they joined.

We’ve published the target unit performance table in a data spreadsheet that accompanies this report. It’s published on data.gov.uk.

The spreadsheet includes:

• the CO2e emissions reported to us by 1 May 2019 for each target unit - ‘U’ stands for unreported by 1 May 2019 although the operator may have subsequently reported
• whether each target unit met its TP3 target - ‘U’ in this column signifies unreported by 1 May 2019
• whether a buy-out fee has been paid for the target unit - ‘U’ in this column signifies unreported by 1 May 2019, ‘Y’ indicates that the fee for a target unit was paid by 1 July 2019, ‘N’ means that no fee was paid by 1 July this may be because no fee was due, it was paid after 1 July 2019 or was not paid at all

4.7 Data accuracy

Inevitably there will be errors in the submitted data used for this report.

Operators may provide us with corrected data found when they review their data. Also we may require changes for errors discovered in audits. However we will not amend and republish this report or the accompanying spreadsheets in light of the revised information. This report is only a ‘snapshot’ of performance taken directly after reporting and is not a live document.

5. Compliance and non-reporters

5.1 Compliance with reporting

We did not receive reports for 9 target units by 1 May 2019. By 1 July we received late submissions from the operators of 7 target units and one operator was in administration. The remaining target unit continues to be part of the scheme but its facilities were not certified from 1 July. Therefore its operator is unable to claim the CCL discount.

5.2 Enforcement

We took enforcement action against two operators. They failed to report the performance of their target unit for target period 2 by the end of 1 May 2017. We required the operators to provide the data and imposed a financial penalty. They received penalties of £250 and £315 respectively calculated as set out in regulations. Both supplied the missing data. One paid the penalty but the other did not which resulted in the termination of their agreement.