14th May 2020
One of the welcome announcements in Rishi Sunak’s March budget was the extension and re-opening of the CCA (Climate Change Agreement) scheme.
Just to recap – this is a voluntary scheme that allows businesses with certain energy-intensive processes across 54 industrial sectors to claim discount on their Climate Change Levy (CCL). In return, participants agree to reduce their energy intensity in-line with a sector-based targets. Targets are set against a baseline with performance judged every two years.
What’s the benefit? The maximum amount of relief available is currently 92% of CCL on electricity and 81% of CCL on gas. For typical organisations this equates to around 7% of energy spend. Therefore, the schemes extension is a welcomed relief, helping promote carbon intensity reduction while reducing operating expenditure.
So that sounds like unalloyed good news but are there any watch outs for the unwary? At the end of every two-year target period, if your site hasn’t achieved the energy intensity reduction target, you choose to either pay a “buy out” or exit the scheme. The difference between your performance and the target inform your buyout fee. The cost of these fees is set to increase.
The scheme had been due to end and current participants lose the associated financial benefit from the 1st of April 2023. However, the recent announcement has secured their CCL relief for a further two years until March 2025. But just as importantly, the scheme has also temporarily been re-opened to new applicants. The application window had previously closed in October 2018 meaning that eligible new businesses wishing to join or existing participants looking to add new sites, had been unable to do so.
This re-opening means that existing participants can add new sites and other businesses, operating eligible processes, as outlined by 54 trade associations, have a limited time frame to submit new applications. You must submit your application before 30th September this year – that’s only 4 ½ months away!
So, nice and easy then? Well not quite. By joining the scheme, you are committing to receiving a tax relief; which we all know the Government doesn’t give out for nothing. Therefore, there are strict guidelines that must be followed in order to first secure the application but then also to maintain compliance to the scheme. You are open to audit by HMRC and the Environment Agency to ensure you are compliant. Businesses found non-compliant can be fined and have their agreement terminated.
The consultation is proposing to use 2018 to baseline performance, amending targets for 2021-22 period, increasing the cost of carbon credits from £14 to £18 per tonne; as well as preventing participants from carrying over any credits they may have accrued as a result of historically good performance ‘resetting the clock’.
A further complicating factor on this occasion is that although businesses need to lodge their applications by 30th September, the consultation process run by The Department for Business, Energy & Industrial Strategy (BEIS) to define the sector specific eligibility targets bilaterally negotiated with trade associations, runs until the end of the year. The analogy could be that participants are entering a race whilst the umpire is still working out the rules but at its simplest “you need to be in it to win it”.
For sites without an agreement, failing to submit an application means paying full rate CCL until April 2025 (unless you have CHPQA or the scheme reopens at a later date – both of which carry a high level of risk).
While targets and some details are out to consultation this should not impact your decision right now if you have an eligible process – consider an application.
As it stands current CCA holders need not re-apply however they will have to recalibrate their future expectations and plan according; to new targets and baselines from 2021 onwards.
Don’t be put of acting now, the timetable means that elements under consultation won’t impact until 2022 since the current targets are published and the anticipated costs therefore can be modelled with a good degree of certainty.
The re-opening of the scheme application window has come at a time when many of the organisations eligible for CCA are facing many short term challenges. It would be easy to either overlook the opportunity offered by CCA due to furloughed resource constraints or other short-term priorities.
Inenco has worked with many leading CCA participants over the life of the programme and is well versed in in maximising the opportunity and avoiding the pitfalls. We can help to analyse the cost / benefit of scheme membership, assemble the required evidence pack, support through the application process and provide clear ongoing reporting and advise on timely corrective action if the risk of non-compliances arises.
We can support you every step of the way in unlocking the opportunity.