Corporate report

Climate change agreements: biennial progress report for 2021 and 2022

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). 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 Energy Security and Net Zero (DESNZ) for the whole of the UK.

This report sets out the energy efficiency improvements and emission reductions achieved by operators for the fifth target period (TP5). TP5 ran from 1 January 2021 to 31 December 2022.

At the end of TP5 there were 3,480 target units covering 9,038 facilities captured in the scheme.

By the 1 May 2023 reporting deadline, the operators of:

• 3,428 target units submitted reports on their TP5 performance (including 21 from operators who had voluntarily terminated their agreements)
• 52 target units voluntarily terminated their agreements
• 21 targets units failed to submit a report

Of the reports we received by the deadline, the operators of:

• 1,593 (46.5%) target units met or exceeded their improvement targets
• 1,835 (53.5%) target units failed to meet their improvement targets

Operators who failed to meet their TP5 improvement target could choose to pay a buy-out fee of £18 for each tonne carbon dioxide equivalent (tCO2e) above their target emissions.

In summary, in TP5:

• 42.4 million tCO2e emissions were reported
• emissions compared to the unadjusted base year reduced by 3.3 million tCO2e (7.3%)
• emissions compared to the adjusted base year (to account for changes to throughput between the base year and TP5), reduced by 3.9 million tCO2e (8.4%)
• if all operators had met their targets exactly, emissions should have reduced by a total of 2.3 million tCO2e compared to the adjusted base year (equivalent to a reduction of 5.0%)
• the net over-performance against targets was 1.6 million tCO2e (equivalent to a reduction of 3.4%)
• 25 of the 50 active sectors and sub-sectors met their TP5 targets

The TP5 base year related to 2018 whereas the TP4 base year related to 2008. (Further details are in section 2.3.)

We have calculated all the figures in this report using the information submitted to us 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 CCA scheme is a voluntary scheme intended to encourage participants to improve their energy efficiency and reduce their carbon dioxide emissions. Participants willingly commit to meeting ambitious energy efficiency or carbon reduction goals, and in return can claim the reduced rates of CCL on their electricity, gas and solid fuel bills.

The maximum percentage discounts on CCL rates between 1 April 2023 and 31 March 2024 are:

• 92% for electricity
• 88% for natural gas
• 77% for liquefied petroleum gas (LPG)
• 88% for other taxable commodities

2.2 Agreements

There are 2 types of CCA agreement:

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

There are 53 umbrella agreements in the current scheme. Each umbrella agreement contains a sector commitment (an 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 Department of Energy and Climate Change (DECC).

The sector commitments for TP5 (1 January 2021 to 31 December 2022) were agreed between sectors and the Department for Business, Energy and Industrial Strategy (BEIS) in December 2020.

(DECC was predecessor of BEIS, which itself was predecessor of DESNZ.)

The ceramics and sawmills sector both contain sub-sectors for which different sector commitments were agreed for TP5. We have separated out sub-sectors with different sector commitments.

The underlying agreement identifies the operator and all the facilities they have chosen to include in their agreement. This group of facilities is collectively known as a target unit. The underlying agreements contain an energy efficiency or carbon reduction target for each target period.

2.3 Improvement targets

Both types of agreement cover five 2-year target periods, running from 1 January 2013 to 31 December 2022. Targets for each of the target periods were set against a base year specific to each sector and target unit. The base year for target periods TP1 to TP4 was 2008 while for the target period TP5, the base year was 2018. Operators who did not have data for the base year were required to use 12 months of data from the next closest period.

Operators of target units who meet or exceed their targets can claim the reduced rates of CCL for the next certification period. Operators who do not meet their target may choose to pay a fee to government to allow them to continue to claim the reduced rates of CCL. For TP5 the buy-out fee was £18 per tonne of CO2e.

See more information on the CCA scheme.

2.4 Biennial progress report

This report provides an overview of the energy efficiency improvements and emission reductions accomplished by operators and sectors in relation to their respective targets. This document is the report for TP5, (1 January 2021 to 31 December 2022) which is published in accordance with Regulation 9 of the Climate Change Agreements (Administration) Regulations 2012 and takes account of the government’s response to the 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 (for example, fuels used by those regulated by the UK emission trading scheme (UK ETS) are excluded). We took the data from operators’ reports that were submitted to us by 1 May 2023 and buy-out fees that were received by 1 July 2023. Any late reports and overdue payments are excluded from 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 page) summarising the scheme, sector and target unit performance
• data for each sector and target unit published on data.gov.uk

3. Significant events affecting CCAs

3.1 Government reviews and changes to policy

The government extended the existing CCA scheme by an additional 2 years as part of the March 2020 budget.

The fifth target period (TP5) began on 1 January 2021 and ran until 31 December 2022. The fifth certification period (CP5) was extended until 30 June 2023 and a sixth certification period (CP6) created which began on the 1 July 2023 and will run until 31 March 2025.

The government undertook 2 additional consultations. The first consultation was undertaken in December 2021 and sought views on the proposals for a future CCA scheme which was undertaken in December 2021. The second consultation was undertaken in March 2023 and related to the extension of the CCA scheme to March 2027 and further proposals on any potential future CCA.

The government is currently evaluating their response to these consultations with the aim to introduce a sixth target period (TP6) beginning on the 1 January 2024 and running through to 31 December 2024. This will be followed by the certification period 7 (CP7) which will run from 1 July 2025 to 31 March 2027. Additionally, the certification period 6 (CP6) will be extended from 31 March 2025 to 30 June 2025.

3.2 Reopening the scheme to new entrants for TP6

The government’s consultation on CCA extension and future scheme reopened the scheme to applications from new entrant facilities between May 2023 until the end of September 2023.

3.3 Data corrections

The biennial reports for TP1 to TP5 provides a snapshot of the scheme’s performance at the time of their publication. Some data in the reports we originally received were changed following the notification of errors and following our own audits. We have not updated the data from previous biennial reports to reflect these changes.

4. Summary of TP5 results

4.1 Reporting

There were 3,480 active underlying agreements in force covering 9,038 facilities immediately after the end of TP5.

For the reporting period between 1 January and 1 May 2023:

• the operators of 52 agreements notified us that they wanted to voluntarily terminate their agreements
• we received 3,428 reports (including 21 reports from operators who had voluntarily terminated their agreements)
• 21 operators failed to submit a report
• ignoring reports from operators who had voluntarily terminated their agreements, we received 99.4% of all the reports we were expecting by the reporting deadline
• we served notices of our intention to issue a financial penalty on the operators of 21 agreements from whom we had not received a report by the reporting deadline
• we received late reports from 10 operators and a further 11 operators notified us that they wanted to voluntarily terminate their agreements

4.2 Target unit performance

The following data is a summary of all the reports we received by the 1 May 2023 and excludes the data from the 10 late reports.

The operators of 1,593 target units (covering 3,757 facilities) met or exceeded their TP5 targets with:

• an average surplus gain of 2,866 tCO2e
• a maximum surplus gain of 728,541 tCO2e
• a total surplus gain of 4.57 million tCO2e

The operators of 1,835 target units (covering 5,220 facilities) did not meet their TP5 targets with:

• an average under-performance of 1,634 tCO2e (equivalent to an average of £29,400 in buy-out fees per target unit)
• a maximum under-performance of 196,068 tCO2e (equivalent to a buy-out fee of over £3.5 million)
• a total under-performance of 3.00 million tCO2e

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.

We served buy-out fee notices on the operators of the 1,840 agreements who did not meet their targets (this includes the buy-out fee notices we issued to the operators of the 5 target units who reported late).

For the target periods TP2 to TP4, we used any surplus operators had gained in earlier target periods to offset any under-performance against targets. A change in the rules for TP5 meant that we could not use any surplus operators had gained in earlier target periods to offset their under-performance against the TP5 target. This meant we issued more buy-out fee notices for TP5 compared to earlier target periods (see table 1).

Table 1: Use of the buy-out mechanism

Target period	TP1	TP2	TP3	TP4	TP5
Number of target units in receipt of buy-out fee notice	1,627	1,321	1,394	1,343	1,840
Number paying buy-out fee by 1 July	1,420	1,216	1,245	1,218	1,590
Total value of buy-out fees received by 1 July 2023 (million pounds)	£22.1	£22.2	£28.9	£33.1	£44.9

The cost of buy-out fees was:

• £12 per tCO2e for TP1 and TP2
• £14 per tCO2e for TP3 and TP4
• £18 per tCO2e for TP5

We certified a total of 8,611 facilities as eligible to claim the reduced rates of CCL from the start of the sixth certification period, which began on 1 July 2023.

Where the operators paid their buy-out fee after 1 July 2023, we certified the facilities from the date DESNZ receives the buy-out fee.

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 against the base year. We can calculate the changes either with or without adjusting the base year figures for changes in throughput. We have provided calculations for both approaches.

4.5 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 3.3 million tCO2e in TP5.

This means that emissions for the 2 years of TP5 were 3.3 million tCO2e below what they would have been if no improvements had been made since the base year.

The energy savings between the base year and TP5 were 17,091 gigawatt hours (GWh).

Table 2: unadjusted changes in emissions (millions tCO2e)

Target period	TP1	TP2	TP3	TP4	TP5
Base year emissions	26.0	25.2	25.5	24.7	22.9
Base year emissions × 2	52.0	50.4	51.1	49.4	45.8
Target period emissions	45.7	45.5	45.0	42.8	42.4
Emissions reduction	6.2	4.9	6.1	6.6	3.3

The figures in the table are rounded to 1 decimal place for display purposes. Calculations have been performed using the full precision of the original data.

4.6 Adjusted calculation of changes accounting for throughput effects

Although the unadjusted approach is easy to calculate, it does not account for changes in throughput and product mix 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 if no improvements been made. As this accounts for changes in throughput and product mix, this gives a more representative assessment of changes in emissions and energy.

Table 3 shows the adjusted base year emissions for all target units with relative targets. The difference between actual emissions and the adjusted base year is an emissions reduction of 3.9 million tCO2e.

The corresponding energy savings using the adjusted base year approach are 19,648 GWh.

If all operators had met their targets exactly, emissions should have reduced by a total of 2.3 million tCO2e compared to the adjusted base year (equivalent to a reduction of 5.0%).

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

Target period	TP1	TP2	TP3	TP4	TP5
Adjusted base year emissions	51.4	53.3	54.0	52.1	46.3
Target period emissions	45.7	45.5	45.0	42.8	42.4
Actual reduction in emissions	5.6	7.8	9.0	9.3	3.9
Target emissions reduction	3.6	4.6	5.9	6.4	2.3

4.7 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 original sector commitment because of changes in the composition of target units in the sector during TP5, such as:

• the removal of target units following termination of agreements
• the removal of facilities from multi-facility agreements
• corrections of errors in 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

Of the 53 sectors in the scheme:

• 5 sectors do not currently contain any target units and have been excluded from our analysis
• the sawmills sector has 2 sub-sectors, each of which has a different target
• the silica sand sub-sector (part of the ceramics sector) has a different target to the other 4 sub-sectors in the ceramics sector

In summary, 25 (50%) sectors and sub-sectors met their targets and 25 (50%) sectors and sub-sectors failed to meet their target.

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 TP5. 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.

4.8 Individual target unit performance

The operators of all target units in the CCA scheme on 31 December 2022 were required to report their performance against their targets in the fifth target period by 1 May 2023.

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

For each target unit the spreadsheet has columns showing:

• the CO2e emissions
• whether the operator met the TP5 target
• whether the operator paid a buy-out fee - ‘Y’ means that the fee was received by 1 July 2023, ‘N’ means that no fee was received by 1 July 2023 - this is either because no buy-out fee was due, it was paid after 1 July 2023 or was not paid

A ‘U’ in any of the columns signifies that the data were unreported by 1 May 2023.  We have chosen to present a snapshot of the data as it was immediately after:

• the reporting deadline (1 May 2023) for the emissions data
• the buy-out fee payment deadline (1 July 2023) for buy-out fees

4.9 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

5.1 Compliance with reporting

Operators of 21 target units failed to submit TP5 reports to us by 1 May 2023. Of these:

• 10 submitted reports within 10 working days of the deadline.
• 11 voluntarily terminated their agreements

5.2 Enforcement

We are currently responding to the non-compliances in accordance with our enforcement and sanctions policy.

We took enforcement action against 10 operators who failed to report the performance of their target unit for target period 4 by the end of 1 May 2021. We required these operators to provide the missing performance data and imposed a financial penalty on them.  We received the missing performance data and penalties totalling £15,780.76 from 9 of these operators. We terminated the agreement for one operator who failed to comply with our penalty notice.

We publish a list of the civil penalties for all climate change regimes, including CCA, on data.gov.uk.