Climate change agreements scheme — extension to new sectors and processes and other amendments
Published 20 April 2026
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Who is likely to be affected
Eligible facilities of the climate change agreement (CCA) scheme.
General description of the measure
Climate Change Levy (CCL) is a tax on the supply of energy to non-domestic users, introduced in 2001 to encourage energy efficiency.
The CCA scheme is open to facilities which carry out one of the listed eligible processes. This measure extends the eligible processes to include production of automotive grade battery cells, packaging of spirits, and mechanical recycling of plastics.
The measure also makes drafting changes to existing secondary legislation to consolidate and clarify eligibility to the CCA.
The measure updates the way the carbon emissions factor for gas — referred to as “H” — is described and calculated. The change means that “H” will now reflect both carbon and carbon equivalents that are emitted. “H” is used when working out the buy-out fee that participants may pay if they have not met their agreed energy or emissions targets, which allows them to access reduced rates of the CCL. The amendment is designed to ensure the calculation is clearer and more closely reflects the environmental impact of gas use, making the scheme fairer and more transparent for all participants.
Policy objective
The CCA scheme is a voluntary scheme where eligible facilities enter into agreements with the government to reduce their energy use or emissions and, in exchange, are entitled to pay reduced rates of CCL. The CCA scheme supports the government’s objectives to deliver affordable and secure energy and decarbonisation while also helping productivity and the growth agenda.
The Department for Energy Security and Net Zero owns the CCA policy, including deciding which facilities to admit into the scheme, and what processes are eligible. The Environment Agency enforces individual businesses within the scheme, including setting targets and ensuring compliance with the scheme. HMRC owns the regulations which set out the definitions of the sectors, and manages the interactions between CCA and CCL reliefs.
The 3 new processes mentioned were not previously eligible to participate in the CCA scheme. Once the instrument takes effect, they will be eligible.
Background to the measure
From November 2023 to February 2024 the government invited expressions of interest for new sectors and processes to be added to the scheme that would support its objectives.
In October 2024, after considering those expressions of interest, the government published its response, confirming that new processes would be admitted to the CCA scheme only if they met certain energy efficiency requirements.
The government’s response highlighted that more time was necessary to implement CCA changes. As a result, the government stated that facilities carrying out the new processes included in the CCA scheme would be admitted to the scheme from January 2027.
In October 2025, having considered the energy efficiency requirements and other relevant factors, the government announced its decision to add the 3 new processes to the CCA scheme.
Operative date
Subject to approval by the House of Commons, the measure is anticipated to come into force on 1 January 2027.
Current law
Section 30 of, and Schedule 6 to, the Finance Act 2000 make provision for CCL to be charged on certain supplies of energy. A reduced rate of CCL is charged if a facility which receives supplies of energy is certified as being covered by a CCA for a certification period. The Climate Change Agreements (Administration) Regulations 2012 (S.I. 2012/1976) (the 2012 Admin Regulations) appoint the Environment Agency to administer CCAs and makes provision in relation to the administration of the scheme. Paragraph 146 of Schedule 6 allows the Treasury to make provisions for the administration of the CCA Scheme.
Facilities may only be covered by a CCA if they are one or more installations or parts installations. Installations are defined in paragraph 51 of Schedule 6.
Paragraph 52 of Schedule 6 enables the Treasury to make regulations to vary the installations covered by paragraph 51. Paragraph 50 of Schedule 6 enables the Secretary of State to make provision for an installation covered by paragraph 51 to be a facility only if it meets certain conditions.
Proposed revisions
The power in Paragraph 146 of Schedule 6 has been exercised to alter the 2012 Admin Regulations, so that the formula description used for “H” in the buy-out fee is altered.
The measure expands the scope of installations covered by paragraph 51.
The measure revokes and remakes Climate Change Agreements (Energy-intensive Installation) Regulations 2006 (S.I. 2006/59) (“the 2006 Regulations”) and amends the Climate Change Agreements (Eligible Facilities) Regulations 2012 (S.I. 2012/2999) (“the 2012 Regulations”). It combines the descriptions of installations (contained in the 2006 Regulations) and eligible processes (contained in the 2012 Regulations) they must carry out so that they appear together this instrument. Paragraph 8 of the Schedule to the 2006 Regulations, which provided for any installation not otherwise covered by paragraph 51 to be an installation, has been removed. Consequential amendments have been made to the 2012 Regulations. The measure provides that new types of installations carrying on new eligible processes will be installations covered by paragraph 51. The new installations are those carrying out:
- the mechanical recycling of plastic
- the packaging of spirits
- the production of automotive grade battery cells
The measure also consolidates definitions relevant to the eligible processes that were previously in the 2012 Regulations. Where those definitions referred or cross-referred to provisions in EU legislation, their reading has been modified to ensure they are operable as a result of the UK’s exit from the EU. The modified reading of these provisions applies only for the purposes of interpreting the regulations within this measure.
Summary of impacts
Exchequer impact (£ million)
| 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 |
|---|---|---|---|---|---|
| — | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impacts
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to impact individuals as it only affects businesses.
Equalities impacts
This measure only affects businesses; therefore it is not anticipated that there will be disproportionate impacts on those in groups sharing protected characteristics.
Administrative impact on business including civil society organisations
This measure will have a negligible impact on 50 to 100 businesses, in terms of admin burdens. Businesses within the 3 new sectors and processes will be eligible to apply for a CCA, which are voluntary agreements between UK industry and the Environment Agency to reduce energy use and carbon dioxide (CO2) emissions. CCA holders can claim a discount on CCL
One-off costs could include businesses needing to familiarise themselves with the change, a business registering for the CCA scheme as a result of entering the scheme and now being entitled to reduce CCL, updating or purchasing of new software and training and upskilling staff. There are not expected to be any continuing costs.
This measure is expected to have no overall impact on businesses’ experience of dealing with HMRC as the extension to new sectors and other amendments do not change any processes or tax admin obligations.
This measure is not expected to impact civil society organisations.
Operational impact (£ million) (HMRC or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.
Other impacts
Other impacts have been considered, and none have been identified.
Monitoring and evaluation
The policy objectives will be kept under regular review by the Treasury and the Department for Energy Security and Net Zero to ensure the CCA scheme continues to provide value for money.
Further advice
If you have any questions about this change, contact Farah Ullah — Energy Taxes either by:
- telephone: 03000 595857
- email: energy.taxes@hmrc.gov.uk
Declaration
Dan Tomlinson MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.