The UK Government has recently released its response to the recent Climate Change Agreement (CCA) scheme consultation. Held between November 2023 and February 2024, the consultation gathered feedback on proposed changes and the scheme's extension, which has now been confirmed for an additional six years. The CCA scheme plays a vital role in helping energy-intensive industries reduce their carbon emissions, and its extension promises continued support in the fight against climate change. Below are the key points from the consultation:

1. Extension of the CCA Scheme

The CCA scheme, which has been active since 2001, will now run until March 2033. This six-year extension enables businesses in energy-intensive industries to continue benefiting from Climate Change Levy (CCL) tax discounts. With over 2,600 participants currently enrolled, the CCA offers significant incentives for companies meeting energy reduction targets. These tax breaks could be worth up to £310 million annually, a substantial relief for businesses aiming to cut emissions while remaining competitive.

2. New Target Periods and Baseline Year

The current CCA scheme’s targets will end in December 2024, and reduced CCL rates will continue until March 2027. New energy reduction targets will be set, with CCL discounts lasting until March 2033. The first target period for the extended scheme will begin in January 2026. One of the most debated outcomes was the decision to use 2022 as the baseline year for energy reporting, a choice that some, including NFU Energy, opposed due to the abnormal disruptions experienced during 2020-2023. A revisit of the metrics used by participants may need to be reviewed to ensure it is the best method to follow the relationship between energy use and production.

3. Administrative Challenges

While the majority of respondents supported the extension and changes to the CCA scheme, several raised concerns about the potential for increased administrative complexity. Many businesses, particularly smaller ones, highlighted that the additional paperwork and compliance requirements might lead to increased costs, making it harder to maintain the scheme's overall benefit.

4. Easier Access for New Participants

A positive outcome from the consultation was the recommendation to simplify entry requirements for new participants. Lowering the barriers to entry could encourage a wider range of businesses to join the scheme, boosting overall energy efficiency across sectors. This move has been well-received, as it could help improve participation rates and incentivise more businesses to invest in sustainable practices.

5. Target Setting Concerns

Certain industries, particularly agriculture and horticulture, expressed concerns over the feasibility of meeting new energy reduction targets. The unpredictable nature of production and energy use in farming, driven by factors such as climate variability and fluctuating economic conditions, makes it difficult to plan for long-term reductions. This challenge underscores the need for flexible targets that take sector-specific constraints into account.

6. Preparing for the Future

With the consultation now concluded, attention shifts to Phase 3 of the CCA scheme, which will begin in 2026. In the meantime, businesses will be preparing for the final reporting period of the current scheme, while also looking ahead to the implementation of new energy reduction targets. The NFU and NFU Energy and other industry bodies will continue working closely with businesses to ensure they are equipped to meet these challenges and make the most of the scheme’s benefits.

The extension of the CCA scheme brings both opportunities and challenges for energy-intensive sectors. While it promises significant tax relief and support for those committed to reducing their carbon footprint, concerns about the administrative burden and ambitious energy targets remain. However, with collaborative efforts from businesses, industry groups, and the Government, the CCA scheme could continue to play a critical role in driving the UK towards its Net Zero ambitions.