Climate Change Agreements protect specific energy intensive industries from the impact of the Climate Change Levy (CCL).
In the energy tax consultation response in March 2016, the Government confirmed its commitment to the Climate Change Agreements scheme until 2023. It also said that the Government would consult on sector targets and the buy-out prices. The results of that are available in the consultation document which closed on 23 September 2016.
Utilitywise represents around 40 CCA participants, spanning a wide range of sectors. Our consultants have vast experience of Climate Change Agreements and other carbon compliance schemes, so we understand the potential impacts of any changes.
Key points in the Climate Change Agreements Consultation
Sector Target review
The Government has looked at the evidence to amend sector targets and concluded that there has been little change in the sectors’ potential to save energy and carbon. Therefore they have decided to not carry out a detailed review of the targets, apart from the new paper and data centre sectors.
Here at Utilitywise we welcome this decision. Stability and consistency are key elements in energy policy that allow participants to concentrate on planning to reduce their consumption, rather than thinking about changing goalposts.
Review of buy-out price
Sector targets were agreed in 2012 and are designed to be achievable but challenging. The buy-out is a way of achieving the target to remain compliant within the scheme. The consultation suggests three options for the price, based on the result of target period 1, TP1.
OPTION 1: Increase the buy-out price to £17/tCO2e for TP3 and TP4.
This option is based on an increase which would align it with the Carbon Reduction Commitment (CRC) allowances. The current buy-out price of £12/ tCO2e was chosen because it brought the buy-out price in line with CRC allowances.
OPTION 2: Increase the buy-out price to £14/tCO2e for TP3 and TP4
This option increases the buy-out price roughly in line with RPI. This ensures that it remains the same, in real terms as when it was set in 2012.
OPTION 3: retain the buy-out price at £12/tCO2e for TP3 and TP4
How could things progress?
The Government’s preferred option is option 2; increase the buy-out price by RPI. They believe it strikes a balance between providing a strong incentive to reduce and the financial impact on participants.
The consultation document asks:
- Whether increasing the buy-out price increases the financial incentive to meet targets
- Which price option is the most appropriate?
In our view, the buy-out price is not a significant influencing factor in companies’ performance against their targets. However, targets will become harder to meet once no/low cost measures have been implemented.
An analysis of our client data shows that:
Around 70% of our clients passed their targets. In comparison to Environment Agency (EA) figures of around 50%, this shows the value of using an experienced consultant like Utilitywise to support your CCA processes.
Of the clients that missed their target, nearly half have an inappropriate target. Other issues were incorrect data and a decline in production. Finally, nearly half the companies that failed also had the incorrect baseline.
Our data shows that focussing on the buy-out price will not increase the number of companies achieving their targets and may discourage participation and energy efficiency. Participants may feel that an error from the beginning of the scheme (when they didn’t fully understand the rules) will hamper them for the rest of the scheme.
In an EA presentation in May 2015 they summarised the results of the first target period. The reason many participants did not meet the target was not due to a lack of investment in energy efficiency, but because of administrative issues. These issues included a range of errors such as:
- Appropriateness of selected base year
- Clerical errors
- Are their agreements in “bubbles”? (aggregated targets)
- Whether they are using the right target type (e.g. absolute, relative or Novem methodology where appropriate)
We believe that the opportunity to review the targets and “bubbling” should be available as part this target review. As the buy-out price is not the main reason for failing, increasing the price will not have the desired outcome. Any opportunity to review their targets will be the first chance participants have had since the start of the scheme.
We need a review of targets for Climate Change Agreements
We think it’s great that the Government continues to support CCAs. However, we believe that a single opportunity to review targets is essential. We need to ensure that Climate Change Agreements deliver energy and carbon savings both for participants and the scheme. The price of the buy-out and a lack of investment in energy efficiency is not the main reason that most companies fail to meet their targets. A one-off review will be the best opportunity to correct target setting errors from the start of the scheme.
Once a target review exercise is complete, participants can then focus on reducing energy and carbon, which becomes harder to do, as quick wins will have already been made.
We want to hear your views
We’ve put together a quick survey to find out what you think. Your answers will remain anonymous and will help us in discussions with Government and their agents. It will aid us in in providing support to energy intensive businesses to help the UK achieve its 2050 carbon target.
You can take part in our survey here.
Get in touch
If you have any queries about your CCA or other carbon compliance schemes, contact our team on 01527 511 757, email email@example.com or visit our website.
I’ll also be presenting at the Sustainable Food and Drink Conference at the National Motorcycle Museum near Birmingham on 15 November. The presentation, Carbon Compliance Post Brexit, will address the uncertainty caused by the Brexit vote and I’ll explain the impact that leaving the EU will have on our legislative landscape. Find out more about the event here.