Corporate report

Climate change agreements: biennial progress report for 2019 and 2020

Updated 31 October 2023

1. Executive summary

Climate Change Agreements (CCA) are voluntary agreements made between industry and government. They give eligible 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 report sets out the energy efficiency improvements and emission reductions achieved by operators and sectors against their CCA targets for the fourth target period (TP4). This period is from 1 January 2019 to 31 December 2020.

There was a 17% reduction in overall emissions reported during TP4 from the 53 sectors in the CCA scheme. The sectors distribute their targets among their target units which in turn are made up of facilities. At the end of TP4 there were 3,262 target units covering 8,705 facilities in the scheme.

Over 99% of target units reported on time within TP4 and 47% met or exceeded their improvement targets. The remainder achieved compliance to remain eligible for the reduced rates of CCL by:

• use of banked surplus accrued through over-performance during previous target periods
• payment of a ‘buy-out fee’ of £14 for each tonne carbon dioxide equivalent (tCO2e) which is the cost for target periods 3 (TP3) and TP4 - for target period 5 (TP5) this will be £18 per (tCO2e)

In summary in TP4:

• 42.8 million tCO2e emissions were reported
• emissions compared to the base year reduced by a total of 6.59 million tCO2e (by 13.3%) - note that:
  • 2008 is the base year for most operators in the scheme, for others it is the next earliest 12-month period after 2008
  • if all operators had met their targets exactly emissions should have reduced by a total of 6.44 million tCO2e compared to the base year
• when base year emissions were adjusted (to account for changes to throughput between the base year and TP4), emissions reduced by 9.33 million tCO2e (by 17.9%)
• there was a net over-performance against targets of 2.35 million tCO2e
• 31 of the 48 active sectors met their TP4 targets - 5 of the original 53 sectors do not contain any active targets and did not submit reports for TP4

The operators of:

• 3,187 target units submitted reports by the 1 May 2021 deadline (equivalent to 99.3% of all reports expected to be received) - target units can be made up of one or more facilities, covered by operators to be covered by an agreement
• 1,510 target units met their improvement targets (47.4% of all reports received)
• 1,677 target units failed to fully meet their improvement targets (52.6% of all reports received)

Of the operators who failed to meet their improvement target:

• 328 used some of their banked surplus to fully cover their under-performance
• 229 used all their available surplus and were offered a buy-out fee to make good the remainder of their under-performance
• 1,120 were offered a buy-out fee to make good the whole of their under-performance

We derived the figures in this report using 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 associated emissions. Participants accept stretching energy efficiency or carbon reduction targets in exchange for a discounted rate of CCL on their electricity, gas, and solid fuel bills. The CCL discount on 1 April 2021 was 92% for electricity and 83% for gas and other taxable commodities.

2.2 Climate change agreements

CCAs are 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 a total of 53 umbrella agreements. Each umbrella agreement contains a sector commitment (energy efficiency improvement or carbon reduction target) for each target period. The sector commitments for TP1 to TP4 were agreed between the sector associations and the former Department of Energy and Climate Change (now part of BEIS) prior to the start of the scheme in April 2013. Sector commitments for the TP5 extension (1 January 2021 to 31 December 2022) have now been agreed between sectors and BEIS (see section 3).

Underlying agreements identify the operator and the facilities covered by the agreement. The underlying agreements contain an energy efficiency or carbon reduction target for each target period. The targets apply to all the facilities covered by the agreement, collectively known as a target unit.

2.3 Climate change agreement targets

Both types of agreement originally covered 4 target periods, which ran from 1 January 2013 to 31 December 2020. The targets were set against a base year specific to each sector and target unit. Where possible 2008 was used as the base year, but if data was not available a more recent year was used. For the TP5 extension the base year is 2018.

The operators of target units that meet or exceed their target remain eligible for the CCL discount. Those operators that do not meet their target must use any banked surplus accrued through over-performance during previous target periods 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 TP4 the buy-out fee is £14 per tCO2e by which an operator exceeds its target, which has since risen to £18 per tCO2e for TP5.

See more information on the CCA scheme.

2.4 Biennial progress report

This document reports the energy efficiency improvements and emission reductions achieved by operators and sectors against their targets for the fourth target period (TP4), 1 January 2019 to 31 December 2020. It is published in accordance 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 2021 and buy-out fees received by 1 July 2021. 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:

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

3. Significant events affecting CCAs

3.1 Government reviews and changes to policy

As part of the March 2020 budget government announced its intention to extend the current CCA scheme by 2 years.

Government consulted on the detail of the TP5 extension and on reforms for any future scheme between April and June 2020. They published their response to the consultation on 31 July 2020. Changes to the Climate Change Agreements regulations came into force on the 1 October 2020.

The fifth target period (TP5) began on 1 January 2021 and runs until 31 December 2022. The fifth certification period was extended until 30 June 2023 and will now be followed by a sixth certification period running from 1 July 2023 to 31 March 2025.

Sector associations negotiated new sector commitment targets for TP5 with BEIS and these were agreed before the start of TP5. Immediately afterwards, we varied existing umbrella and underlying agreements to include the new terms of the agreements.

Sector associations provided their proposed distributions of targets to individual target units in January 2021, following which we issued underlying agreements containing targets to operators.

3.2 Reopening the scheme to new entrants for TP5

The original agreements included a rule which prevented the addition of new entrant facilities to agreements during the last 2 months of each target period and during the whole of the final target period (TP4). This rule meant we could not accept applications from new entrant facilities or re-joining facilities after the end of October 2018.

Government’s consultation on extending the scheme also proposed reopening the scheme to applications from new entrant facilities until the end of November 2020.

We added a total of 539 new entrant facilities to agreements by the revised new entrant deadline (31 March 2021).

3.3 Data corrections

The biennial reports for TP1 to TP3 were snapshots of the scheme’s performance at the time of publication. Some of the data contained within these reports was corrected following notification of errors by operators and as a result of our own audits. The data in previous biennial reports has not been updated to reflect these corrections.

3.4 Adjustments to TP4 targets due to the coronavirus (COVID-19)

The restrictions imposed during 2020 to limit the spread of COVID-19 impacted the ability of some operators to meet their TP4 targets. BEIS amended their Technical Annex in January 2021 to add the direct impacts of COVID-19 as one of the circumstances for which operators could ask us to adjust their target.

Operators who wanted to adjust their TP4 target provided data to show how their performance during 2020 was adversely impacted by the measures introduced to limit the spread of the virus. Where data showed performance in 2020 was worse than in 2019 and could be attributed to COVID-19 restrictions, we adjusted targets. This was to make sure operators would not pay any more buy-out fee had the same level of performance from 2019 been achieved for the whole of TP4.

We processed 170 requests for adjustments to TP4 targets, which resulted in total reductions to buy-out fees of over £1.1 million.

4. Summary of TP4 results

4.1 Reporting

Following the end of TP4, there were a total of 3,262 active underlying agreements in force covering 8,705 facilities.

We received 3,187 reports by the reporting deadline of 1 May 2021. Ignoring those operators that terminated their agreements by the reporting deadline, the number of reports received was 99.3% of all reports we were expecting.

4.2 Target unit performance

The operators of 1,510 target units (covering 3,110 facilities) met their TP4 targets with:

• an average surplus gain of 3,900 tCO2e
• a maximum surplus gain of 782,083 tCO2e
• a total surplus gain of 5.89 million tCO2e

The operators of 1,677 target units (covering 5,507 facilities) did not meet their TP4 targets with:

• an average under-performance of 2,100 tonnes of carbon dioxide equivalent (CO2e)
• a maximum under-performance of 280,185 tonnes of CO2e
• a total under-performance of 3.53 million tonnes of CO2e

4.3 Use of the buy-out fee

The operators of target units that did not meet their targets had the opportunity to use the buy-out mechanism. Of those operators who did not meet their targets:

• 233 used some of their banked surplus to fully cover their under-performance
• 229 used all their available banked surplus and were offered a buy-out fee to address the remainder of their under-performance
• 1,120 were offered a buy-out fee to address the whole of their under-performance

Table 1: Use of the buy-out mechanism

Target period	TP1	TP2	TP3	TP4
Number of target units in receipt of buy-out fee notice	1,627	1,321	1,394	1,343
Number paying buy-out fee	1,420	1,216	1,245	1,218
Total value of buy-out fees paid by 1 July (million pounds)	£22.1	£22.2	£28.9	£33.1

Note: the cost of buy-out was £12 per tCO2e in TP1 and TP2) and increased to £14 per tCO2e for TP3 and TP4.

We certified a total of 8,998 facilities at the start of the fifth certification period, which began on 1 July 2021. This includes the 539 new entrants that joined the scheme in TP5. We will recertify other facilities owned by operators who pay their buy-out fees after 1 July 2021 from the date BEIS receive the buy-out fee in full.

4.4 Overall changes in emissions and energy use

We calculate changes by comparing a target unit’s emissions and energy use in the target period compared to the base year. We can calculate the changes either with or without adjusting the base year figures for changes in throughput.

Unadjusted calculation of changes

The simplest way of calculating the changes is to double the energy and emissions data in the base year (12 months) and subtract the corresponding data reported for the target period (24 months). These calculations are presented in table 2, which shows an overall unadjusted emissions reduction of 6.6 million tonnes of CO2e in TP4.

This means that emissions for the 2 years of TP4 were 6.6 million tonnes of CO2e below what they would have been had no improvements been made since the base year. The energy savings between the base year and TP4 were 29,750 gigawatt hours (GWh).

Table 2: unadjusted changes in emissions (millions tCO2e)

Target period	TP1	TP2	TP3	TP4
Base year emissions	26.0	25.2	25.5	24.7
Base year emissions × 2	52.0	50.4	51.1	49.4
Target period emissions	45.7	45.5	45.0	42.8
Emissions reduction	6.2	4.9	6.1	6.6

Adjusted calculation of changes accounting for throughput effects

Although the unadjusted approach is easy to calculate, it does not account for changes in throughput that may have occurred since the base year. Most target units have ‘relative targets’, which express the energy consumed in terms of throughput. For example, this may be kilowatt hours per tonne of product. We describe this measure as the specific energy consumption (SEC).

Using the base year SEC and the target period throughput we can calculate the amount of energy that would have been consumed in the target period had no improvements been made. As this accounts for changes in throughput, it gives a more representative assessment of changes in emissions and energy.

In table 3, this adjustment is 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 9.3 million tonnes of CO2e. The corresponding energy savings are 45,653 GWh.

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

Target period	TP1	TP2	TP3	TP4
Adjusted base year emissions	51.4	53.3	54.0	52.1
Target period emissions	45.7	45.5	45.0	42.8
Actual reduction in emissions	5.6	7.8	9.0	9.3
Target emissions reduction	3.6	4.6	5.9	6.4

4.5 Sector performance

Umbrella agreements specify a sector commitment (target) for each target period, relative to the base year. We determine whether a sector meets the sector commitment by comparing the actual achievement of target units in the sector against a ‘sector improvement target’ calculated from the sector commitment. The sector improvement target may differ to the sector commitment because it accounts for the changes in composition of the sector throughout TP4, such as:

• the removal of target units following termination of the agreement
• the removal of facilities from multi-facility agreements
• corrections to base year data
• adjustments to targets due to unexpected power supply disruptions
• adjustments to targets due to throughput reductions greater than 10% for target units with absolute targets
• adjustments to target due to the restrictions imposed to restrict the spread of COVID-19

Based only on the sector improvement targets, 31 of the 48 sectors met their targets. (The 5 sectors that do not currently contain any target units are not included in these figures. The sawmilling sector has 2 sub-sectors with different sector commitments.)

The sector targets provide a basis for setting individual targets in the underlying agreements. There are no direct consequences for sectors over- or under-performing against their targets.

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 each of the target periods TP1 to TP4. It is important to recognise that energy and emissions data for the base year period (12 months) cannot simply be compared with equivalent data for each of the target periods (24 months) due to the difference in length of the respective periods.

We have deliberately excluded energy consumption data for sectors with fewer than 3 distinct operators to avoid disclosure of commercially sensitive information.

4.6 Individual target unit performance

The operators of all target units in the CCA scheme on 31 December 2020 were required to report their performance against their targets in the fourth target period by 1 May 2021.

The target unit performance table is published in a data spreadsheet that accompanies this report and is published on data.gov.uk.

For each target unit the spreadsheet has columns showing:

• the CO2e emissions
• whether the operator met the TP4 target
• whether the operator paid a buy-out fee - ‘Y‘ means that the fee was received by 1 July 2021, ’N‘ means that no fee was received by 1 July - this is either because no buy-out fee was due, it was paid after 1 July 2021 or was not paid

A ‘U’ in any of the columns signifies that the data were unreported by 1 May 2021. We have chosen to present a snapshot of the data as it was:

• immediately after the reporting deadline (1 May 2021) for the emissions data
• immediately after the buy-out fee payment deadline (1 July 2021) for buy-out fees

4.7 Data accuracy

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

5. Compliance and non-reporters

Compliance with reporting

Operators of 24 target units failed to submit TP4 reports to us by 1 May 2021. Of these:

• 9 submitted reports within 10 working days of the deadline
• 4 submitted their reports by 1 July
• 1 submitted their report after 1 July
• 6 have voluntarily terminated their agreements
• 4 are yet to submit a report

Enforcement

We are currently responding to the above non-compliances in accordance with our Enforcement and Sanctions Policy.

Following the end of the TP3 reporting cycle, we issued a financial penalty to one operator who had failed to submit their report on time. This operator’s agreement has been subsequently terminated.