Climate Register of Legal and Other Requirements

The Climate Change Levy (CCL) is a tax applied to energy consumed by business and the public sector and is automatically added to energy bills. 

The following main rates of CCL apply from 1 April 2024 and from 1 April 2026:

	April 2024 to March 2026	April 2026 onwards	Units
Electricity	0.775	0.801	p/kWh
Natural Gas	0.775	0.801	p/kWh
LPG	2.175	2.175	p/kg
Any other taxable commodity (including solid fuels)	6.064	6.264	p/kg

Certain processes are exempt from the main rate of CCL as are good quality CHP registered with CHPQA Scheme and in possession of a certificate of exemption. (see Amendments section below for further detail).

Climate Change Agreements (CCAs)

CCAs are available to certain energy intensive sectors. Holders of CCAs pay the reduced rate of CCL. As of 31 March 2022, the scheme is current closed to new entrants. Phase 2 of the CCA scheme runs from April 2013 to 31 March 2027 and is administered and regulated by the Environment Agency across the UK. Levy reductions for CCA holders between 1 April 2024 and 31 March 2026 are as follows:

	Levy Reduction for Consumption subject to a CCA
	1 April 2024 to 31 March 2026
Electricity	92%
Natural Gas	89%
LPG or other hydrocarbon gas	77%
Any other taxable commodity	89%

Reductions are provided for commitments to sector negotiated energy or carbon reduction targets. Organisations failing to meet targets are required to buy carbon allowances to make up the shortfall, a situation that is potentially very expensive.

2023 regulations extended the CCA scheme to 31 March 2027 and added target period 6, which runs between 1 January 2024 and 31 December 2024. The carbon allowance buy out price is set at £25for target period 6.

Levy reductions are provided on 100% of any taxable commodity, where eligible processes present 70% or greater of the organisation's consumption.

Carbon Price Support

Fuel used to generate electricity was exempt from the CCL until the Finance Act 2013 introduced a new tax, the Carbon Price Support (CPS). Generators with >2MW capacity must now pay the CPS on fuel used to generate electricity.

Individual CHP plants >2MW must pay the CPS on the proportion of fuel (coal, gas, kerosene and LPG) used to generate electricity. The proportion used to generate heat is exempt.

Since April 2015 fossil fuels used in good quality combined heat and power (CHP) plants are exempt from the carbon price floor.

CPS rates of CCL are as follows: 

	CPS Rate	Units
Natural Gas	0.331	p/kWh
LPG	5.280	p/kg
Coal and other solid fossil fuels	154.79	p/GJ

 

The CPS rate per tonne of carbon has been frozen at £18 until 31 March 2026. This has also frozen these rates on each commodity during this period.

Forthcoming Changes to the Climate Change Agreement Scheme

On 23 November 2023, the Autumn Statement confirmed that a new, six-year climate change agreement scheme would run between 1 July 2027 and 31 March 2033. It was announced that the scheme will open to further sectors and more regular reporting will be required. Targets will be applied between 2025 and 2030.

Other Amendments

The Climate Change Agreements (Energy Intensive Installations) Regulations 2006 and the Climate Change Agreements (Eligible Facilities) Regulations 2012 expanded the types of installations that may be covered by a climate change agreement to include other activities such as heat-treating metals. The Schedule to the 2012 Regulations lists the relevant processes and activities that are considered eligible. 

Exemptions for Mineralogical and Metallurgical Processes

The Finance Act 2014 provides a 100% exemption from the CCL on energy used in metallurgical and mineralogical processes. Exempt processes are presented in HMRC guidance and include glass manufacture, metal production, processing and treatment.

Other Amendments to the Climate Change Levy (General) Regulations 2001

• A 2013 amendment introduced the formula which establishes the quantity of fuel referable to the production of electricity in a CHP station on which carbon price support rates of the CCL are due.
• second 2013 amendment corrects an error in this formula by excluding fuel used to produce mechanical power.

Other Pertinent Legislation and Amendments:

• The Climate Change Agreements (Amendment of Agreements) (EU Exit) Regulations 2018 updated CCAs to reflect the UK's departure from the EU. 
• The Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2014 exempt solid fuels used for structural purposes in the production of syngas from industrial and municipal waste from the climate change levy.
• The Climate Change Levy (Combined Heat and Power Stations) Regulations 2005 and 2013 amendment allow supply of electricity generated in Good Quality CHP plants to be exempt from the main rate of CCL.

GUIDANCE

HMRC has provided guidance on the levy, including registration, the treatment of CHP, relief and special treatment for taxable supplies, renewable electricity and penalties and interest.

The UK left the EU on 31 January 2020. This Act fully repealed powers and obligations under the European Communities Act 1972. The UK also left the European Economic Area and Euratom Treaty. The Trade and Cooperation Agreement with the EU came into force on 31 December 2020.

The European Union (Withdrawal) Act 2018 converted directly-applicable EU law in force up to 11:00pm on 31 December 2020 to domestic law.

European Court decisions made after 11:00pm on  31 December 2020 are not binding and matters may not be referred to the European Court in the future.

The Act does not prevent the UK from replicating any EU law made on or after exit day in the future.

Withdrawal Agreement and Impacts on Legislation

The European Union (Withdrawal Agreement) Act 2020 implemented the UK-EU Withdrawal Agreement, which came into force on 31 January 2020.

Under the European Union (Withdrawal) Act 2018, as amended, directly-applicable EU legislation (e.g. Regulations and Decisions) made up to the 31 December 2020 has been retained as UK law.

Trade Agreement

The Trade and Cooperation Agreement between the EU and UK came into effect on 31 December 2020. This requires that levels of environmental protection in place on 31 December 2020 are maintained as a minimum, including committed targets. Trade remedies (‘rebalancing measures’) may be applied under the agreement should levels of environmental and climate protection drop below the other party and this present a trading advantage.

The agreement includes a general commitment to strive to increase levels of environmental and climate protection. Future environmental policy must take relevant scientific and technical information, international standards, guidelines and recommendations into account.

Changes to Retained EU Legislation

The Act allows legislation to be made by Ministers to prevent, remedy or mitigate failures of retained EU law to operate effectively or to address other deficiencies. These powers may only be used until 31 December 2022.

Retained EU legislation may be modified later by passing an Act of parliament, primary legislation or certain types of subordinate legislation.

Environmental Principles

This Act requires that a Bill is published setting out environmental principles for future policymaking. The Environment Bill delivers this requirement, requiring the following principles to be applied:

• precautionary principle, so far as relating to the environment;
• principle of preventative action to avert environmental damage;
• principle that environmental damage should as a priority be rectified at source;
• polluter pays principle;
• principle of sustainable development;
• principle that environmental protection requirements must be integrated into the definition implementation of policies and activities;
• public access to environmental information;
• public participation in environmental decision-making; and
• access to justice in relation to environmental matters.

The Environment Bill will establish a public authority (the Office of Environmental Protection) to take enforcement action against Ministers and other policymakers for failing to apply the environmental principles.

Related Legislation

The European Union (Future Relationship) Act 2020 implements Trade and Cooperation Agreement between the UK and EU (‘Trade and Cooperation Agreement’) in part.

This 2020 Act also established a regime to apply international standards on non-food products, including on machinery, hazardous substances within electrical and electronic equipment and pressure equipment.

Northern Ireland Protocol

The Protocol on Ireland and Northern Ireland was agreed alongside the Brexit Withdrawal Agreement. This avoids a hard border between Ireland and Northern Ireland by keeping Northern Ireland in the EU single market.

The Northern Ireland Protocol requires the Northern Ireland Assembly to vote periodically (commencing 31 December 2024) to either extend or end Northern Ireland’s alignment with EU law. This is termed the ‘democratic consent process’.

Background

The European Communities Act 1972 applied EU legislation in the UK. EU legislation was also provided supremacy over UK domestic law by this Act.

The UK left the EU on 31 January 2020. This Act fully repealed powers and obligations under the European Communities Act 1972. The UK also left the European Economic Area and Euratom Treaty. The Trade and Cooperation Agreement with the EU came into force on 31 December 2020.

The European Union (Withdrawal) Act 2018 converted directly-applicable EU law in force up to 11:00pm on 31 December 2020 to domestic law.

European Court decisions made after 11:00pm on  31 December 2020 are not binding and matters may not be referred to the European Court in the future.

The Act does not prevent the UK from replicating any EU law made on or after exit day in the future.

Withdrawal Agreement and Impacts on Legislation

The European Union (Withdrawal Agreement) Act 2020 implemented the UK-EU Withdrawal Agreement, which came into force on 31 January 2020.

Under the European Union (Withdrawal) Act 2018, as amended, directly-applicable EU legislation (e.g. Regulations and Decisions) made up to the 31 December 2020 has been retained as UK law.

Trade Agreement

The Trade and Cooperation Agreement between the EU and UK came into effect on 31 December 2020. This requires that levels of environmental protection in place on 31 December 2020 are maintained as a minimum, including committed targets. Trade remedies (‘rebalancing measures’) may be applied under the agreement should levels of labour and social protection drop below the other party and this present a trading advantage.

The agreement includes a general commitment to strive to increase levels of environmental and climate protection. Future labour policy must take relevant scientific and technical information, international standards, guidelines and recommendations into account.

Changes to Retained EU Legislation

The Act allows legislation to be made by Ministers to prevent, remedy or mitigate failures of retained EU law to operate effectively or to address other deficiencies. These powers may only be used until 31 December 2022.

Retained EU legislation may be modified later by passing an Act of parliament, primary legislation or certain types of subordinate legislation.

Related Legislation

The European Union (Future Relationship) Act 2020 implements Trade and Cooperation Agreement between the UK and EU (‘Trade and Cooperation Agreement’) in part.

This 2020 Act also established a regime to apply international standards on non-food products, including on machinery, hazardous substances within electrical and electronic equipment and pressure equipment.

Northern Ireland Protocol

The Protocol on Ireland and Northern Ireland was agreed alongside the Brexit Withdrawal Agreement. This avoids a hard border between Ireland and Northern Ireland by keeping Northern Ireland in the EU single market.

The Northern Ireland Protocol requires the Northern Ireland Assembly to vote periodically (commencing 31 December 2024) to either extend or end Northern Ireland’s alignment with EU law. This is termed the ‘democratic consent process’.

Background

The European Communities Act 1972 applied EU legislation in the UK. EU legislation was also provided supremacy over UK domestic law by this Act.

The Energy Savings Opportunity Scheme (ESOS) scheme requires large undertakings to undergo energy efficiency audits. Large undertakings must calculate their total energy use, which must be assessed and/or signed off by an approved assessor. The ESOS report is required to identify reasonably practicable and cost effective ways to improve the undertaking’s energy efficiency.

These regulations implement Article 8(4), (5) and (6) of the Energy Efficiency Directive (2012/27/EU). The Environment Agency administrates the ESOS scheme across the UK, and specific regulators are in place for each state and offshore.

The Energy Savings Opportunity Scheme (Amendment) Regulations 2023 significantly amended the ESOS scheme from phase 3 onwards. These changes are integrated to this summary. Schedule 3 records information that must be included in ESOS reports, that must be notified to the scheme administrator and information that is to be published by the scheme administrator.

Scope

All large undertakings (and any small or medium undertakings within the same corporate group as a large undertaking) must participate in ESOS. A “large undertaking” has:

• 250 or more UK employees; and/or
• an annual turnover over £44 million and annual balance sheet total exceeding £38 million.

Group undertakings are required to participate in ESOS as a group by default, although individual undertakings may participate individually if agreed in writing.

Exemptions

Public sector bodies and insolvent undertakings.

Compliance Periods

A notification of compliance must be submitted to the regulator by 5 June 2024 in phase 3.

For phase 4 a deadline of 5 December 2027 applies. Subsequent deadlines will fall on 5 December every four years.

Ensuring Compliance

Compliance can be achieved via:

• an ESOS audit, which must be approved by a Lead Assessor if total energy consumption equals or exceeds 40 MWh;
• ISO 50,001 certification from a UK-accredited body;
• a valid display energy certificate (DEC); or
• green deal assessments.

The compliance route must account for 95% of the organisation's energy use. The remaining 5% may be excluded from the audit, certification or assessment as 'de-minimis'.

ESOS Audits: Required Evidence

Undertakings subject to ESOS must compile “evidence packs”, including any data required to calculate total energy consumption and facilitate an energy audit. Data must be:

• Reflective of at least 95% of the undertaking’s energy consumption, including all energy supplied, consumed by assets held or used in activities carried out.
• Reflective of all usage by buildings, industrial process and transport;
• Converted to kWh;
• Verifiable and cover a 12 month consecutive period no more than 24 months prior to the commencement of the energy audit; and
• Where estimates are used, this must be clearly stated alongside the estimation method used.

Energy audits must specifically include site visits to representative locations.

Evidence packs must also include:

• Records of previous ESOS audits;
• Evidence of the certification of any energy management system, display energy certificate or qualifying green deal assessment (as relevant);
• Records of previous notifications to the Environment Agency by lead assessors concerning prior ESOS audits; and
• Any written agreements for individual group undertakings to carry out ESOS assessments independently.

Evidence packs must be retained for at least two of the four year compliance periods after they were first used.

ESOS Reports: Audits

Undertakings subject to ESOS must arrange an ESOS assessment, which must be undertaken or reviewed and signed off by at least one approved lead assessor, unless total energy consumption is below 40 MWh.

The assessor is required to:

• Analyse the participating undertaking’s energy consumption and efficiency;
• Identify and recommend reasonably practicable and cost effective means to improve efficiency; and
• Energy saving opportunities identified must be analysed with respect to relevant organisational purposes and category, relevant considerations and provide estimated financial and non-financial costs and benefits, alongside a programme providing details of impacts, payback periods and timescales.

ESOS reports must include all information in Chapter 3A. This includes an estimate of energy savings since the preceding ESOS compliance date. Reports must identify the proportion of energy consumption relating to transport, industrial processes, buildings or other uses and at least one energy intensity radio must be calculated for each of these purposes.

Notification of Compliance

Following completion of the ESOS report, the lead assessor is required to notify the Environment Agency that the participating undertaking’s duties have been met. Where a lead assessor is not required to be appointed and has not been appointed, two “responsible officers” must be appointed and make the notification.

Notifications must include confirmation that a “responsible officer” from the undertaking is satisfied they have complied with the scheme and information to be notified is correct.

ESOS Action Plans

After an ESOS compliance notification, ESOS action plans must be produced. These plans must record:

• Measures to improve energy efficiency during the next compliance period;
• Whether measures were recommended by an energy audit;
• The timescales for the measures; and
• Estimates of total energy savings for each measure and the estimation method used.

If no measures to improve efficiency are possible, the action plan must consist of a statement that no improvements are proposed for implementation in the next compliance period.

The action plan must be notified to the scheme administrator by 5 December 2024 (in phase 3) or by 4 December in the first year of each subsequent compliance period (e.g., 4 December 2028 for phase 4).

ESOS Progress Updates

Progress updates must be prepared, including information such as details of action taken to improve the participant’s energy efficiency, estimated impacts on energy consumption and whether the timescales in the last action plan were met.

Progress updates must be notified to the scheme administrator as follows:

• Initial progress update: due within the one year period starting one year and a day after the last compliance deadline; and
• Further progress update: due within the one year period starting two years and a day after the last compliance deadline.

Lead Assessors

Lead assessors under ESOS are listed on an Environment Agency approved register. Approvals are reviewed at least every four years.

The Environment Agency is to determine whether persons qualify for approval based on the competence requirements in PAS 51215 standard (Energy efficiency assessment – Competency of a lead energy assessor).

Enforcement

Enforcement notices and financial penalties may be issued against undertakings should they fail to meet their duties under these regulations.

Brexit Implications

A 2018 amendment ensures ESOS continues to function. Financial thresholds triggering obligations under ESOS are set in pounds rather than euros. 

GUIDANCE

• Environment Agency - Complying with ESOS