Climate Change Agreements (CCAs) – What you need to know?
A CCA is a voluntary contractual agreement between an organisation and the Government Regulator – in this case, the Environment Agency (EA). The organisation, usually an industrial company, agrees to report energy use against a target to the EA.
CCAs are a UK Government initiative having an objective of reducing industrial energy use and CO2 emissions. For those organisations involved at the time, the first reporting period was in 2002. In its current form CCAs are projecting to continue operating until 31st March 2023.
- What is required and do I qualify?
- What are the requirements of CCAs?
- Why Have CCAs?
- What are the benefits of CCAs?
What is required and do I qualify?
A company can apply to have a CCA if they have one or more sites. In CCA terminology, sites are called Facilities. These facilities carry out activities in one of several industrial sectors, about 54 of them at the latest count. These sectors are mostly related to manufacturing, but operation of data centres and temperature controlled warehousing are also included. All sectors with CCAs are relatively energy-intensive industries using mains natural gas and/or electricity.
The industrial sectors are represented by sector associations which are usually the bodies that represent that sector for all issues. E.g. the Chemical Industries Association and the Food and Drink Federation. If you carry out an activity that is represented by a sector association that has been approved by government as energy intensive, the chances are you will be able to apply for a CCA.
For medium to large sites it is nearly always worth having a CCA. Your sector association will advise on what forms and documents are required. This will include a plan for each facility showing energy intensive areas that are related to the key activities, and “non-eligible” areas such as offices, canteen, reception area, outside lighting. A description of the activities, process flow diagrams, identification of energy metering and sub-metering is also required. For a CCA that covers the whole site the non-eligible energy must be shown to be 30% or less of the total energy, however, sites that have a CCA that does not cover the entire energy use are usually still beneficial. This calculation is known as the 70/30 calculation.
Another key requirement, within CCA’s, is to establish a baseline period of energy use, often associated with a throughput measure such as production output in tonnes. If necessary a CCA can start before a baseline has been established, and up to one year of monitoring carried out to record the necessary data. The baseline is used to set challenging targets for reducing energy consumption, either in terms of kWh consumed, or more usually in kWh per unit of production.
Please note that new applications for CCAs will not be accepted after 31st October 2018. As it can take several months to put an application together, it is recommended that new applications are started as soon as possible, and certainly no later than June 2018.
What are the requirements of CCAs?
Once you have a CCA, you are obliged to report energy performance in comparison to the target stated in the agreement. If you use less energy than the target, either as kWh or kWh/unit depending on the agreement, then there is no further compliance cost to consider. This situation is called an overachievement. If you have a second facility covered by the same CCA that underachieves or fails the target, then on a combined basis the overachievement of one facility will offset the underachievement of the other.
In the case of underachievement (not meeting the target) the tonnes of CO2 by which the target has been missed is calculated, and you pay a penalty based on the price set by Government x tCO2 underachieved.
E.g. an underachievement of 150 tCO2 in 2015/16 at £12/tCO2 would have resulted in a penalty of £1,800.
There are also requirements to maintain an evidence pack of documents and data related to the CCA, and to regularly update the 70/30 calculation, e.g. usually once per year. The sector associations may ask you to submit reporting data at other times additional to the bi-annual reporting periods, this will be part of your agreement with the sector.
The EA are auditing CCA participants, and they may ask for documentation to check that you are maintaining records and completing tasks in line with the CCA. Usually, the audit is completed as a desk exercise with no visit.
Why Have CCAs?
The main reason for having a CCA is so that energy-intensive industries can claim relief on the climate change levy (CCL) payments that are shown on gas and electricity bills. A site with 100% CCA coverage can claim 90% and 65% relief on electricity and gas respectively.
A site consuming 1000 MWh of electricity and 2000 MWh of gas per year would ordinarily have paid £9,490 in CCL at 2016/17 CCL rates. A CCA that covered 100% energy use would reduce these payments by £7,566. From 01/04/19 the CCL rates are due to increase dramatically on both electricity and gas. At the same time, the maximum relief that can be claimed will change to 93% and 78% on electricity and gas respectively. So a CCA that may appear to provide marginal savings now, may provide significant tax relief from April 2019, and remember it will not be possible to apply for a new CCA after October 2018.
A CCA may be used as part of company sustainability reporting, as one of several indicators of environmental awareness and performance reporting.
Some companies may have activities that are too small to warrant the administration costs that come with a CCA. For example, a single high street bakery could qualify but is unlikely to benefit once all costs are taken into account.
What are the benefits of CCAs?
It is a worthwhile exercise for facilities that are not meeting their targets, to check that it is still worthwhile to continue with their CCAs. If the penalties due to not meeting targets are similar to the CCL relief then it is probably worth terminating the CCA. In the majority of these cases, the benefits are still well worthwhile but do remember to take into account possible penalty costs which will become due every two years. The additional CCL tax from 1st April 2019, and hence also the savings from having a CCA, should also be taken into account.
It is worth remembering that the Carbon Reduction Commitment scheme (CRC) was significantly more expensive for participants than CCAs, but sites operating a CCA were able to opt out of the CRC. This was an unforeseen additional benefit of CCAs at the time most companies initiated their agreements.
Some companies with marginal cost saving benefits from their CCAs may well be sticking with them until future legislation is more clearly defined.