United Kingdom

UK-1:Climate Change Agreements (CCA)

Policy Description

The United Kingdom’s Climate Change Agreements (CCAs) aim to achieve energy savings and energy efficiency improvements energy-intensive industry while protecting their competitiveness. The CCAs were introduced simultaneously to the introduction of the Climate Change Levy (CCL) in 2001 (see UK-5) and work together as a package. The CCL provides an incentive for the sectors to enter in the Climate Change Agreements (CCA). Participating energy intensive companies are granted a 65% tax rebate provided that they meet specific targets.

Description

The United Kingdom’s Climate Change Agreements (CCAs) aim to achieve energy savings and energy efficiency improvements energy-intensive industry while protecting their competitiveness. The CCAs were introduced simultaneously to the introduction of the Climate Change Levy (CCL) in 2001 (see UK-5) and work together as a package (*1). These voluntary agreements contain targets for eligible industry sectors to increase energy efficiency or reduce carbon dioxide (CO2) emissions. An operator holding a CCA can claim a discount to the CCL charged on their energy bills. In the past, participating energy intensive companies have been granted a 65% tax rebate provided that they meet specific targets  (*2) [1].

The first phase of the scheme was for the period from 2001 till March 2013. The new scheme is being administered from 1 April 2013 until 31 March 2023. Under the new scheme participants can start claiming their CCL discount at the revised rate of 90% for electricity and 65% for other fuels [2].

There are two types of CCA agreements:

  • “Umbrella” agreements that set commitments for eligible industry sectors, and are negotiated between the sector associations and the Department for Energy and Climate Change (DECC) and;
  • “Underlying” agreements that contain targets allocated by the sectors to the operators in each sector.

The new scheme (started in 2013) applies to 51 sectors with umbrella agreements, with about 4,300 underlying agreements covering some 9,900 facilities. All the sectors that were previously eligible to hold a CCA remain eligible, though a number of sectors have merged taking the total from 54 to 51. This new CCA will lead to an 11% energy efficiency improvement across the UK’s most energy intensive industries by 2020 [10]. The CCAs cover a wide range of industry sectors, from major energy-intensive processes, such as steel, chemicals and cement, and agricultural businesses including intensive pig and poultry rearing. Targets vary widely ranging from 25% for the laundry industry at to 2.8% for aluminium [10] .

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Administrative, Negotiated Agreement

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2001

End Date: 2023

Policy Linkages

Supported By Enhanced Capital Allowance (ECA) Scheme Supporting Measure
Supported By Pollution Prevention and Control (PPC) Act Supporting Measure
Complements EU Emissions Trading System (EU ETS) Effort Defining

Agencies Responsible

Department of Energy and Climate Change

Primary Objective: Energy

Objective

The objectives of the CCA/CCL are to achieve greenhouse gas and energy savings with industry sectors and individual companies, and at the same time protect the competitiveness of the most energy-intensive sectors of industry. The CCAs targets can be relative, i.e. per unit of output, or absolute, i.e. irrespective of their production level.

Target Group

Large Enterprises as defined initially in PPC Act and extended in the Energy Products Directive (*4). Major industrial sectors are: Aluminium, Cement, Ceramics, Chemicals, Food & drink, Foundries, Glass, Non-ferrous metals, Paper, Steel

Driver of energy consumption or emissions affected by policy: Energy efficiency and carbon dioxide emission reductions within the industry companies in the broad sense.

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

51 sectors have entered into the CCA, with about 4,300 underlying agreements covering some 9,900 facilities

Quantitative Target? yes

Target: ­The CCA scheme has two levels of targets– one for the sector known as the ‘sector commitment’ and one for the operator known as the ‘target unit target’. Sector commitments are agreed between DECC and the sector associations. Targets can be expressed in terms of energy (kWh, MWh, GJ or PJ) or carbon (KgC, tC) and as either absolute or relative. As a result, there are four types of target that are possible in CCAs: Relative energy (e.g. kWh/m2), Absolute energy (e.g. MWh), Relative carbon (e.g. kgC/tonne) and Absolute carbon (e.g. tonnes C). For energy targets, kWh is the most commonly used unit because it is the unit most frequently used in metering the main types of energy (electricity and gas) [11]. Once a target currency has been determined and the underlying agreement has been signed this cannot be changed until the 2016 review Sector commitments will be reassessed in 2016 and where appropriate will be adjusted accordingly. Where the sector commitment changes, sector associations will be able to redistribute the target unit targets [11]. The scheme is expected to deliver an overall 11% energy efficiency improvement across all industry sectors by 2020 against agreed baselines. In most cases the agreed baseline is 2008. Specific targets for sectors can be found at [12]

Time Period: Four two-year target periods – each covering two calendar years – running from 2013 to 2020.

Progress Monitored? yes

Monitoring Done By

Organisation Type Organisation Name
Government Agency Environment Agency

Verification Required? yes

Verification Done By

Organisation Type Organisation Name
Government Agency Environment Agency

Enforced? yes

Sanctions: If participants do not comply with the agreed target participants can continue to receive the CCL discount if they pay a “buy-out” fee set at £12 per tonne of CO2 equivalent by which the target has been missed. Operators that do not comply with their target and do not pay the buy-out fee will be ineligible for the CCL discount. Operators can re-enter the scheme at the start of the next certification period by paying any missed buy-out fees and any other outstanding penalties. They must also meet the target set for the previous period that they were decertified for or pay buy-out. Where an operator overachieves against their target, there is a mechanism to allow operators to ‘bank’ surplus tonnes of CO2. This surplus can then be used in future target periods to offset underachievement [13].

Requirements on the Target Group

CCAs include a monitoring regime. For each target period,  operators must monitor and report their energy consumption against against agreed targets. Sector associations manage underlying agreements agreements for their members through the CCA register, an online website.  

  • The target group is expected to pay a charge. There are two types of charges – one levied on the sector association (trade body representing each industry) and one on the target unit (single facility or group of facilities that together hold a single agreement). The sector association charge is £1,000 per year for each sector association. Certain exemptions exist. The target unit annual charge is based on the number of facilities comprising that target unit. The charge is £185 per year multiplied by the number of facilities. This charge is applicable if you hold an Agreement, irrespective of the duration of the Agreement itself [14].

Support by Government

The Government grants a discount of 90% for electricity and 65% for other fuels from the climate change levy (CCL) for those sectors that meet their targets for improving their energy efficiency or reducing carbon emissions (*5).

Implementation Toolbox

The following tools are provided to support the implementation of the Climate Change Agreements:

  • Guidance on how to set targets, monitoring plans, and report on annual achieved savings; [7]

Complexity of Implementation

Government

The government needs to verify the energy savings claimed by the sectors and companies, and verify the exemption for the climate change levy.

Target Group

Companies/sector need to submit their energy saving target, and biennially need to report on their energy consumption

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions ­­During the fifth target period (2008-2010) 28.5 million tonne per year of CO2 emissions were saved in total compared to sector base years (sector base years vary, depending upon the sector, and range from 1990 to 2008) [8]
Estimated costs/benefits for industry Industry is saving over £1.5 billion (€1.77b) per year on energy costs in addition to the savings on the Climate Change Levy itself (£350m (€413m)) [5]. The CCAs bring a net benefit — i.e. negative cost to the UK of £90 for every tonne of carbon dioxide the policy saves. Overall, targets in all five periods to date have been significantly exceeded.
Estimated cost for government ­£9.5m (net present value of costs for the period 2012-2020) [3] .
Other Benefits
General Benefits Improves efficiency, reduces emissions of other air pollutants, lower costs, improves competitiveness and new market opportunities

References & Footnotes

References

[1] Department of Energy and Climate Change (DECC, 2012). Climate Change Agreements. Available from: http://www.decc.gov.uk/en/content/cms/emissions/ccas/ccas.aspx .

[2] The Environment Agency, UK Government Available at: http://www.environment-agency.gov.uk/business/topics/pollution/136236.aspx

[3] DECC (2012). Impact Assessment Proposals on the future of Climate Change Agreements. Available from: http://www.decc.gov.uk/assets/decc/11/consultation/cca-simplification/4176-ia-proposals-future-cca.pdf

[4] MURE II Database on Energy Efficiency Policies and Measures (Industry). Available from: http://www.isisrome.com/data/mure_pdf/industry/UK6.PDF

[5] Pender, Defra, UK Climate Change Programme Business and Public Sector Economic Instruments. Available at http://www.unido.org/fileadmin/user_media/Services/Energy_and_Climate_Change/EPU/Pender.pdf

[6] Matthieu Glachant, Gildas de Muizon (2006). Climate Change Agreements in UK: A Successful Policy Experience?. CERNA, Paris, April 2006

[7] DECC guidance notes: Available at http://www.decc.gov.uk/en/content/cms/what_we_do/change_energy/tackling_clima/ccas/ccas_guidance/ccas_guidance.aspx#4

[8] AEA (2011) Climate Change Agreements – Results of the Fifth Target Period Assessment, October 2011

[9] Mure II Industry UK ETS. Available at http://www.isisrome.com/data/mure_pdf/industry/UK11.PDF

[10] Greenwise (2013), “Government agrees new Climate Change Agreements with energy intensive industries” April 4, 2013. Available at http://www.greenwisebusiness.co.uk/news/government-agrees-new-climate-change-agreements-with-energy-intensive-industries-3884.aspx

[11] DECC (2013), Climate Change Agreements: eligibility, metering requirements and target setting guidance. Version 1.0 Available at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/230087/CCA_eligibility_metering_and_target_setting_guidance.pdf

[12] UK Government (2013). Press Release. “Industry agree stretching energy efficiency targets with government” Available at https://www.gov.uk/government/news/industry-agree-stretching-energy-efficiency-targets-with-government

[13] Environment Agency (2013). Climate Change Agreements Operations Manual. Available at http://a0768b4a8a31e106d8b0-50dc802554eb38a24458b98ff72d550b.r19.cf3.rackcdn.com/LIT7911_8c1f07.pdf

[14] Environment Agenct (2013). Climate Change Agreement Charges. Available at http://www.environment-agency.gov.uk/business/regulation/145402.aspx

Footnotes

(*1) In the period 2002-2006 the climate change programme included, next to the CCA and CCL, a voluntary (domestic) emissions trading scheme called UK ETS [9]. Therefore, since 2006 UK Government’s immediate focus is on implementing the EU Emissions Trading Scheme (EU ETS), rather than expanding the UK ETS as originally envisaged (for example with new direct participants or a pilot project entry route).

(*2) Originally the tax relief was 80%. This was reduced to 65% in April 2011. From 1 April 2013, the rate will remain at 65% for all fuels except electricity, which will be increased to 90% [3] .

(*3) Climate Change Agreements (CCAs) cover major energy-intensive processes. Energy-intensive industries were defined initially as industries covered by Part A1 or A2, in Part 1 of Schedule 1 of the PPC (as amended). In 2006, the qualifying criteria for sectors that could apply for a CCA was extended and the definition of ‘energy intensity’ expanded to include the one set out in the Energy Products Directive (which came into force on 1 January 2004). The extended criteria are as follows: 1) Energy intensity (EI) must be 3 percent or more (i.e. energy costs must be 3 percent or more of the production value for the sector). 2) The industry import penetration ratio must be 50 percent or more. This ratio is calculated for the sector as a whole to determine its exposure to international competition. (The import penetration ratio is the total value of sector imports, divided by the total value of UK sector sales, plus the total sales value of imports, minus the total value of sector exports.) Smaller sites that do not meet the size thresholds of the Pollution Prevention and Control (PPC) Regulations, but otherwise would qualify, are also eligible for a CCA. The exception to this is combustion plants with more than 50 MW capacity and the 3 MW limit for burning waste oil, recovered oil or fuel manufactured from or comprising waste.

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