Explanatory note

These Regulations concern the scheme providing for a reduced rate of climate change levy (“CCL”) established under Part IV of Schedule 6 to the Finance Act 2000 (c. 17). A facility which receives supplies of energy and which has entered into a climate change agreement (a voluntary agreement between such a facility and the Environment Agency) must meet targets for energy use or emissions which are specified in the agreement during a target period. If it does, it is eligible for a reduced rate of CCL during the certification period which is specified in the agreement in relation to that target period. If a facility does not meet any target for a target period, it may pay a buy-out fee on each tonne of carbon dioxide equivalent by which it falls short of meeting that target, and thus remains eligible for the reduced CCL rate.

The Climate Change Agreements (Administration) Regulations 2012 (S.I. 2012/1976) deal with the administration of the scheme and specify target periods. Regulation 2 amends S.I. 2012/1976 to provide for the following three new target periods: from 1st January 2026 to 31st December 2026 (“target period 7”), from 1st January 2027 to 31st December 2028 (“target period 8”) and from 1st January 2029 to 31st December 2030 (“target period 9”). It also makes amendments so that targets for those target periods are set by reference to a facility, rather than by reference to a group of facilities operated by a single operator.

Regulation 2 also amends the terms to be included in climate change agreements to specify a formula for the calculation of the buy-out fee for the new target periods. The formula reflects the methodology used to calculate the buy-out fee which is specified as a fixed sum in regulation 12 of S.I. 2012/1976 for target period 6. Application of the formula results in a number of pounds payable per tonne of carbon dioxide equivalent, with that amount representing the weighted average of the CCL rates for gas and electricity which will apply for at least the first financial year of the new target periods. Regulation 2 also amends regulation 14 of S.I. 2012/1976 in relation to the terms to be included in a climate change agreement to require operators to provide information. Corresponding amendments are made to regulation 15 dealing with penalties.

Regulation 3 amends the Climate Change Agreements (Eligible Facilities) Regulations 2012 (S.I. 2012/2999) to extend their effect until 31st March 2033, when the certification period in respect of target period 9 will end. These Regulations are also amended in relation to the multiplication factor for calculating reckonable energy for electricity (that is, the primary energy required to generate the electricity), the use of which is relevant to determining whether a facility is eligible to enter into a climate change agreement. This multiplication factor is changed for grid electricity from 2.6 to 2.1. Electricity generated from solar, wind or water power and either generated on-site or not supplied through a distribution network is excluded from this multiplication factor.

Regulation 3 also makes amendments to update the provisions dealing with the calculation of reckonable energy from combined heat and power stations and dedicated electricity generation plant, so that they reflect the use of renewable and non-renewable fuels.

Regulation 4 makes transitional provision to the effect that the amendments only apply in relation to the new target periods.

A proportionate analysis of costs and benefits has been produced for this instrument. It is available from the Department for Energy Security and Net Zero at 3 - 8 Whitehall Place, London SW1A 2AW and is published alongside this instrument at www.legislation.gov.uk.