Summary

The Government recognised the need for special consideration to be given to the energy intensive industries given their energy usage and their exposure to international competition. Consequently, the Government has provided an 80% discount from the Climate Change Levy for those industry sectors that agree challenging targets for improving their energy efficiency or reducing carbon emissions. The mechanism for Government and industry to agree targets and for companies to claim the levy reduction are Climate Change Agreements (CCAs)..

CCAs have a two-tier structure:

• a sector-level agreement between Defra and the sector or trade association (known as an umbrella agreement)
• individual agreements between Defra and the operator of the facility (known as underlying agreements)

Who is eligible?

Climate Change Agreements (CCAs) cover a wide range of industrial sectors, from major energy intensive processes such as steel, chemicals and cement, to agricultural sectors, such as intensive pig and poultry rearing.

Smaller sites that do not meet the size thresholds of the Pollution Prevention and Control (PPC) Regulations, but which otherwise would qualify, are also eligible for an agreement. The exception to this is combustion plants of greater than 50 MW capacity and the 3 MW limit for burning of waste oil, recovered oil or fuel manufactured from or comprising waste.

Umbrella Agreements

Defra has negotiated with trade bodies representing energy intensive business sectors for climate change agreements. In these agreements the sector undertakes to meet a challenging energy efficiency or carbon saving target in return for an 80% discount from the levy. At present there are 50 climate change agreements.

Reduced Rate Certificates

Once a facility has been approved for a Climate Change Agreement (CCA), they can receive an 80% reduction from the Climate Change Levy. The list all the facilities within each sector that belong to a CCA and are eligible for the reduced rate levy.

What is the Levy?

The Climate Change Levy (CCL) is a tax on the use of energy in industry, commerce and the public sector. There are offsetting cuts in employers' National Insurance Contributions and additional support for energy efficiency schemes and renewable sources of energy.

When was the Levy introduced?

The levy was introduced on 1st April 2001.

Why was the Levy introduced?

he aim of the levy is to encourage users to improve energy efficiency and reduce emissions of greenhouse gases.

What are the benefits?

The levy is playing a major role in helping the UK to meet its targets for reducing greenhouse gas emissions. It entails no increase in the tax burden on industry as a whole and no net gain for the public finances. The Government is returning the revenues from the levy to the non-domestic sector, principally through a cut in the rate of employers' National Insurance Contributions of 0.3 percentage points. Businesses are also benefiting from schemes aimed at promoting energy efficiency and stimulating the take-up of renewable sources of energy, eg. solar and wind power. There is also a scheme of 100% first year capital allowances for certain energy saving investments.

Who does the Levy apply to?

The levy applies to industrial and commercial energy supplies in the following sectors: industry, commerce, agriculture; and public and service sectors.

The levy does not apply to fuel supplies to domestic consumers or the transport sector, or fuels used for the production of other forms of energy (eg electricity generation) or for non-energy purposes. The levy does not apply to energy used by registered charities for non-business use, and domestic level energy supplies used by very small firms (ie roughly equivalent to the energy used by a six-bedroom house).

Taxable energy supplies that are subject to the levy include: natural gas, electricity, petroleum and hydrocarbon gas in liquid form, coal, lignite and coke. The levy does not apply to oils, which are already subject to excise duty.

The latest levy rates can be found at the HM Revenue and Customs web site.

Are there any exemptions?

There are several exemptions from the levy, including:

• Electricity generated from new renewable energy (eg solar and wind power)
• Fuel used by good quality combined heat and power schemes ("Good Quality CHP" — certified via the CHP Quality Assurance Programme CHPQA)
• Fuels used as a feedstock
• Electricity used in electrolysis processes, for example, the chlor-alkali process, or primary aluminium smelting

The Government has put in place a range of measures to assist energy users to improve their energy efficiency, such as 100% first year capital allowances and Enhanced Capital allowances for energy saving investments by the private sector.

The Levy is added to bills before VAT and, although there is no legal requirement for it to be shown, is likely to appear as a separate item on energy bills.

Latest developments

On 12 March 2009 DECC launched a consultation on the form and content of new Climate Change Agreements following the Government's decision to extend the scheme (subject to State aid approval), until 2017.

The Government has reviewed the current Climate Change Agreements with a view to simplifying them for the benefit of business and government and to achieve greater coherence with other relevant climate change policy. It makes a number of proposals for changes to the form and content of existing Climate Change Agreements, on which the views of interested parties are sought. A number of questions are also raised about other possible changes to the Agreements on which the Government may decide to make proposals, subject to the nature of the responses it receives.

Latest developments