UK
Ireland
Extension to climate change levy reliefs
Understand the changes to the climate change agreements (CCA) scheme, proposed in the government’s new technical consultation, including why these discounts on climate change levy reliefs matter and what you should be thinking about now.
The UK government has launched a technical consultation on draft regulations that will reshape the CCA scheme from January 2027. This update is significant for energy-intensive businesses and those managing tax compliance, as it introduces new eligible processes and consolidates existing rules under a single statutory instrument.
The consultation closes on 2 December 2025, and stakeholders are encouraged to provide feedback to ensure the regulations deliver their intended effect.
Why this matters
The CCA scheme offers substantial discounts on the climate change levy, a tax applied to energy use by non-domestic consumers, provided businesses meet energy efficiency targets.
For many organisations, this relief translates into substantial annual savings and supports competitiveness in energy-intensive sectors. With the UK committed to net zero by 2050, the government is extending and refining the scheme to drive decarbonisation while maintaining industrial viability.
Key changes in the draft regulations
The proposed amendments focus on two main areas:
Expansion of eligible processes
From January 2027, three new processes will qualify for inclusion in the CCA scheme:
- Mechanical recycling of plastic
- Packaging of spirits
- Production of batteries for electric vehicles
These additions reflect the government’s recognition of emerging sectors critical to sustainability and circular economy goals.
Technical consolidation and clarity
The draft regulations aim to consolidate eligibility conditions into one statutory instrument, ensuring consistency and reducing ambiguity. Importantly, the changes do not exclude any business currently carrying out an eligible process. Instead, they strengthen definitions and compliance requirements to make the scheme more robust.
Implications for finance directors and tax managers
- Financial planning: The CCA discount on the climate change levy (CCL) can significantly reduce energy costs. For businesses in newly eligible sectors, this represents an opportunity to lower operating expenses and improve margins
- Compliance and reporting: The consultation signals a move towards stricter definitions and clearer eligibility criteria. Finance teams should review current processes and prepare for potential adjustments in reporting obligations
- Strategic positioning: Inclusion of battery production and plastic recycling aligns with broader ESG objectives. Companies in these sectors should consider how participation in the CCA scheme can enhance sustainability credentials and investor confidence
Action points
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Assess eligibility
Determine whether your organisation’s activities fall within the expanded scope. For businesses in plastics, spirits packaging or EV battery production, early engagement is critical.
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Prepare for facility level targets
The government has indicated a shift towards facility-level compliance, removing previous sector level ‘bubbling’ of targets. This will require granular energy data and robust internal controls. It will significantly increase the risks of failing to meet the agreement because individual facilities that fail to meet their targets will no longer be able to rely on the sector as a whole passing their agreement.
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Respond to the consultation
Feedback is essential to ensure the regulations are practical and reflect industry realities. Submissions can be made via email to energy.taxes@hmrc.gov.uk, or by post to HMRC’s Trinity Bridge House.
Looking ahead and how S&W can help
The statutory instrument is expected to be laid before parliament in Spring 2026, with implementation from January 2027. Businesses should use this time to model the financial impact, update compliance frameworks and integrate energy efficiency targets into strategic planning.
Our team can support you in several ways:
- Eligibility review: We’ll assess whether your operations qualify under the expanded CCA scheme and identify opportunities for relief
- Financial impact analysis: We can model potential savings and help integrate them into your budgeting and forecasting processes
- Compliance frameworks: We’ll assist in preparing facility-level reporting systems and internal controls to meet new requirements
- Consultation response: We can draft and submit feedback on your behalf to ensure your voice is heard in shaping the final regulations
If you’d like tailored advice for your finance and tax teams, please get in touch.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. You should always seek appropriate tax advice before making decisions. HMRC Tax Year 2025/26.
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