Increase to Buy-Out for Climate Change Agreements

           Carbon and Climate

Climate Change Agreement (CCA) participants will see an increase in the buy-out price for future Target Periods, the government confirmed this month. The Government Response followed a discussion paper, issued earlier in the year, on both the buy-out price and a possible review of targets.

CCAs are voluntary agreements between energy-intensive industries and the government, with the aim of increasing energy efficiency. In return for meeting emissions targets, CCA participants receive a discount to the Climate Change Levy (CCL),  currently a 90% reduction on electricity and 65% on gas and other taxable commodities. The government estimates that participants save a total of £300 million per annum against their CCL costs.

Agreements are available to companies that carry out one of the processes specified for each of the 53 trade sector bodies that coordinate CCA participation. A variety of sectors with energy-intensive processes are included , such as chemicals, surface engineering, and food.

If participants do not meet specified targets, they have the option of retaining their CCA by paying a buy-out price per tonne of CO2e by which they have missed their objective. This was set at £12/tCO2e in 2012, where it has remained ever since. It was set at a level considered to provide a balance between the need to encourage abatement and to manage the financial impact. Having gained stakeholder views, the government has decided that the price should be increased roughly in line with inflation to £14/tCO2e for TP3 (1 January 2017 to 31 Dec 2018) and for TP4 (1 Jan 2019 to 31 Dec 2020).

It was announced in the discussion paper that the review of sector targets, originally planned for 2016, would not take place for the original CCA sectors. This decision has now been extended to the two new sectors: sawmilling and data centres.

An additional benefit for participants is that CCA emissions are excluded from the CRC Energy Efficiency Scheme (CRC). When the CRC ends in 2019, rather than lose the associated revenue stream, The Treasury has scheduled a significant increase to CCL, to be accompanied by a greater discount for companies with CCAs. These changes will keep CCA compliance at the top of participants’ agenda, while the increased buy-out fee will underpin the case for further investment in carbon abatement.

Nikki Wilson

Nikki joined Alfa Energy in September 2015 as a Carbon Management Consultant where she advises clients on legislation, compliance, and the implementation of carbon management schemes. She is a Practitioner member of IEMA, has a postgraduate diploma in Environmental Decision Making, and has over 15 years’ experience in energy consultancy.