climate change and business implications

climate change agreements and climate change levy implications for UK organisations

While this article seeks to explain climate change and particularly its effect on modern UK businesses, the implications will be felt by all businesses around the world in similar ways, whether now or in the future.

"The UK Climate Change Levy came into effect on 1st April 2001 and applies to energy used in the non-domestic sector (industry, commerce, and the public sector). The aim of the levy will be to encourage these sectors to improve energy efficiency and reduce emissions of greenhouse gases." (This is from Defra - the UK Department for Environment, Food & Rural Affairs - 2005)

The UK Government's Climate Change strategy is to encourage UK industry to use less energy by using financial measures, specifically taxation. And more specifically the Government's stated aim is to reform the tax system, according to this oft-quoted statement made in 1997, following the Kyoto Agreement:

"The burden of taxation will move from the 'goods' to the 'bads'; (thereby to) encourage innovation in meeting higher environmental standards."

Given the strange use of pre-school language it's as well to understand that in this context, 'goods' are products or services considered to be socially and environmentally beneficial, for example, health and public transport services; whereas 'bads' are products or services considered to be socially and environmentally damaging, for example, tobacco, alcohol, private and commercial road transport.

Stemming from the Kyoto and related EU commitments, and following the recommendations in the Marshall Report on Economic Instruments, the UK Government introduced the Climate Change Levy on all non-domestic use in April 2001, after announcing it in the 1999 Budget. So we've known about this for a while...

The Climate Change Levy (CCL) is charged on certain energy supplies used by the industrial and commercial sectors, agriculture, public administration and other institutional services and organisations.

Typically businesses and other organisations pay the Climate Change Levy through their utilities bills.



climate change summary and reasons for the climate change levy

In short, modern expert opinion seems to be that if we neglect the need to improve our energy consumption, it is predicted that the earth's climate will rise by 3 degrees over the next 100 years resulting in, for example:

  • Sea levels rising
  • Global food supplies reduced
  • 3 billion people could suffer increased water stress
  • 290 million people could be exposed to the risk of malaria
  • Tropical rain forests could disappear due to water shortages

According to Defra (the UK Department for Environment, Food & Rural Affairs), in 2005: "...The scientific evidence is growing that man-made greenhouse gas emissions are having a noticeable effect on the earth's climate. Globally, the ten hottest years on record have all occurred since the beginning of the 1990s. Current climate models predict that global temperatures could warm from between 1.4 to 5.8°C over the next 100 years, depending on the amounts of greenhouse gases emitted and the sensitivity of the climate system. The social, environmental and economic costs associated with this could be huge..."


the Kyoto commitment

The participating nations at the 1997 Kyoto summit conference agreed to control and reduce emissions of 'greenhouse gases', which are generally now believed to be responsible for global warming.

Kyoto's effects are increasingly impacting on UK businesses; notably two significant policies are now influencing UK business decision-making:

  • The Climate Change Levy (a system of taxation intended to control energy and emissions levels)
  • The ECA (Enhanced Capital Allowances) scheme (which enables reduced levels of tax payable on qualifying capital investment made in energy efficient technologies).

According to Defra, 2005, after the scheme was established:

".. Businesses' commitment to tackling climate change is growing in the UK. Many firms have recognised and acted on the cost effective opportunities that are available for cutting greenhouse gas emissions. Some leading firms have adopted high profile initiatives bringing wide-ranging benefits - they deliver real cuts in emissions, offer good examples for others to emulate and introduce a constructive and practical note into climate change debate. The Government welcomes the action that business has already taken, but much more significant changes will be needed as part of the move to a lower carbon economy. In developing its programme, the Government aims to build on the foundations that have already been laid and recognises the diversity within the business sector. The programme aims to encourage and enable businesses of all kinds to take the lead in finding and implementing cost effective measures that will cut greenhouse gas emissions. The intention is to tackle climate change while ensuring that a healthy and competitive business base is maintained and, where possible, improved..."


the climate change levy, ECA's, and implications for UK organisations

The Climate Change Levy is applied in the UK (N Ireland is treated differently) at rates depending on the energy content of the different sources. For example (when introduced in 2001, and fixed until 2007):

  • Liquid petroleum gas (LPG) + 0.07 p/kWh
  • Gas, coal, lignite and coke + 0.15 p/kWh
  • Electricity + 0.43 p/kWh

From 2007 these rates have been index-linked (increased in line with official inflation figures), so that at 2014 the rates are (extracted from, May 2014):


Rate from 1 April 2014

Rate from 1 April 2015

Reduced rate of CCL for CCA holders


0.541 pence per kilowatt hour

0.554 pence per kilowatt hour

From 10%

Gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility.

0.188 pence per kilowatt hour

0.193 pence per kilowatt hour

From 35%

Any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state.

1.210 pence per kilogram

1.240 pence per kilogram

From 35%

Any other taxable commodity.

1.476 pence per kilogram

1.512 pence per kilogram

From 35%


Electricity attracts a higher tax rate because a considerable proportion of the energy content of the fossil fuels used to generate the electricity is lost in combustion, transmission and distribution. Petrol and diesel, and road fuel gases, mineral oils and waste and other renewable energy sources are not taxable commodities.

Logically, by reducing energy consumption, businesses and organisations can reduce the impact of this tax.

Certain businesses which use large amounts of energy can participate in negotiated Climate Change Agreements involving energy efficiency targets, which can result in them achieving up to 80% rebate on the levy.

climate change agreements

(Extracted/adapted from information, April 2014)

Climate change agreements are voluntary agreements made by UK industry and the Environment Agency to reduce energy use and carbon dioxide (CO2) emissions. In return, operators (business organizations) receive a discount on the Climate Change Levy (CCL), which is a tax (detailed above) added to electricity and fuel bills.

The Environment Agency administers the CCA scheme on behalf of the whole of the UK.

For operators who hold a CCA (Climate Change Agreement), the CCL will be reduced by:

  • 90% on electricity bills
  • 65% on other fuels

CCAs are available for a wide range of industry sectors from major energy-intensive processes such as chemicals, paper and supermarkets to agricultural businesses such as intensive pig and poultry farming. There are two types of CCAs:

  • umbrella agreements
  • underlying agreements

The Department of Energy and Climate Change and industry sectors negotiate umbrella agreements. Together they agree the energy efficiency targets for a sector - 'the sector commitment'.

The agreement is then held between the sector association and the Environment Agency; the administrator.

Umbrella agreements also list the processes that are eligible for a CCA.

An underlying agreement is held by a site, or group of sites, owned by an operator within a particular sector. This contains energy or carbon efficiency targets appropriate for their type of operation. Sector associations manage the underlying agreements for businesses in their sector. An operator that wants to enter into a CCA must apply first to its sector association.

how CCAs work

A revised CCA scheme started in April 2013 and is scheduled to run until 31 March 2023.

An operator that has a CCA will measure and report its energy use and carbon emissions against agreed targets over four, two-year target periods. If an operator has more than one eligible facility (for example manufacturing sites) in the same sector it could hold individual CCAs for each facility, or choose to group them together under one CCA. The target could then be shared across the grouped facilities. Where a facility, or group of facilities, holds a CCA, it is referred to as a 'target unit'.

If the operator meets its targets at the end of each reporting period, it continues in the scheme and is eligible for the discount on the CCL.

Details of businesses that hold CCAs are published every month as reduced rate certificates for each sector.

The Environment Agency maintains a summary of processes within each sector that are eligible for a CCA.

More information for industrial sectors is available via the website.

ECA (enhanced capital allowances) scheme

The UK ECA (Enhanced Capital Allowances) scheme provides distinct financial advantages to organizations purchasing machinery, equipment and vehicles which comply with the qualifying criteria.

For detailed current information see

The Enhanced Capital Allowance (ECA) Scheme is a key part of the Government programme to manage climate change. It provides businesses with enhanced tax relief for investments in equipment that meets published energy-saving criteria.

Businesses can write off the whole of the capital cost of their investment in these technologies against their taxable profits of the period during which they make the investment. This can deliver a helpful cash-flow boost and a shortened payback period.

In short, the key features of the ECA scheme are:

  • Businesses can claim enhanced capital allowances, regardless of size, industrial or commercial sector or location
  • Enhanced capital allowances permit the full cost of the investment in specified technologies to be relieved for tax purposes against taxable income of the period of the investment
  • The qualifying technologies have to meet defined energy efficiency criteria.
  • Qualifying technologies are published on UK Government websites
  • Criteria and qualifying technologies are reviewed annually
  • Only investments in new and unused machinery and plant can qualify.

Enhanced Capital Allowances enable a business to claim 100% first-year capital allowances on their spending on qualifying plant and machinery. There are three sub-category schemes for ECA's:

1. Energy-saving plant and machinery (for example):

  • Water conservation plant and machinery
  • Qualifying technologies and applications include:
  • Air to air energy recovery
  • Automatic Monitoring and Targeting
  • Boilers
  • Combined Heat and Power (CHP)
  • Compact heat exchangers
  • Compressed air equipment
  • Heat pumps for space heating
  • HVAC zone controls (Heating, Ventilation and Air-Conditioning)
  • Lighting
  • Motors
  • Pipework insulation
  • Refrigeration equipment
  • Solar thermal systems
  • Thermal screens
  • Variable Speed Drives
  • Warm air and radiant heaters

2. Low carbon dioxide emission cars and natural gas and hydrogen refuelling infrastructure (for example):

  • New business-use cars having carbon dioxide emissions below certain levels
  • Natural gas and hydrogen refuelling equipment at refuelling stations

3. Water (for example):

  • Flow Controllers
  • Meters
  • Leakage detection
  • Efficient toilets
  • Efficient taps
  • Rainwater harvesting equipment


Defra explained UK policies for the business sector thus:

The climate change levy is a tax on the use of energy in industry, commerce and the public sector, with offsetting cuts in employers' National Insurance Contributions and additional support for energy efficiency schemes and renewable sources of energy. The levy forms a key part of the Government's programme. Information about the climate change levy can be found on the HM Revenue and Customs (was Customs and Excise) site (see link below).

Climate Change Agreements allow energy intensive business users to receive 80 per cent discount from the Climate Change Levy, in return for meeting challenging energy efficiency or carbon saving targets.

Emissions trading is a key part of the longer term solution to greenhouse gas emissions. Emissions trading allows companies to emit in excess of their allocation of allowances by purchasing allowances from the market. Similarly, a company that emits less than its allocation of allowances can sell its surplus allowances. In contrast to regulation which imposes emission limit values on particular facilities, emissions trading gives companies the flexibility to meet emission reduction targets according to their own strategy; for example by reducing emissions on site or by buying allowances from other companies who have excess allowances. Further information on the emissions trading schemes can be found at the Defra website section for Emissions Trading.


climate change - facts and effects

Anyone doubting the seriousness of the situation might change their views after learning more below.

And if you think that the year 2070 or 2080 is too far ahead to worry about, consider that it's just a couple of generations from now.

Defra (UK Department for Environment, Food & Rural Affairs) defines the 'greenhouse effect' and greenhouse gases thus:

greenhouse effect

A balance between energy coming in from the sun in the form of visible radiation (sunlight) and energy constantly being emitted from the surface of the earth to space determines the temperature of the earth. The energy coming in from the sun can pass through the atmosphere almost unchanged and warm the earth, but the infrared radiation emanating from the earth's surface is partly absorbed by some gases in the atmosphere and some of it is re-emitted downwards. This further warms the surface of the earth and the lower atmosphere. The gases that do this naturally are mainly water vapour and carbon dioxide. An analogy is made with the effect of a greenhouse, which allows sunshine to penetrate the glass that in turn keeps the heat in, hence the greenhouse effect. Without this natural greenhouse effect, the earth would be over 30°C cooler and would be too cold to be habitable. But as greenhouse gas concentrations rise well above their natural levels, the additional warming that will take place could threaten the future sustainability of the planet. The extent to which changes in temperature over the last 100 years are due to human activities has been studied by looking at patterns of change across the surface of the earth, and vertically through the depth of the atmosphere and the ocean. Climate models predict a characteristic 'fingerprint' pattern of change in response to increasing greenhouse gas concentrations. Statistical analysis shows that this fingerprint can be detected in observed temperature changes, indicating that most of the change which has occurred can be attributed to human activities. The individual contributions of natural effects, for example, variations in the sun's output and volcanoes, have also been studied. They were found to be unable to account for all of the observed warming. Only when greenhouse gases emitted by human activities are invoked can the observed warming be explained. Borehole measurements worldwide imply a global surface warming of around 1°C during the last 500 years, with about half of this warming occurring in the 20th Century.

greenhouse gases

The most important greenhouse gases are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. These are the gases that are covered by the Kyoto Protocol. Chlorofluorocarbons (CFCs) and hydrochlorofluorocarbons (HCFCs), which are also powerful greenhouse gases but they are being progressively phased out under the Montreal Protocol as they also damage the stratospheric ozone layer. A full list of greenhouse gases covered by the Kyoto Protocol is given below. Each greenhouse gas has a different capacity to cause global warming, depending on its radiative properties, its molecular weight and its lifetime in the atmosphere. Its so-called global warming potential (GWP) encapsulates these. The GWP is defined as the warming influence over a set time period of a gas relative to that of carbon dioxide. A 100-year time horizon is used in the Kyoto Protocol. When the warming effect of current greenhouse gas emissions over the next 100 years is calculated, the graph shows that carbon dioxide will be responsible for about two thirds of the expected future warming.


Not to be confused with aerosol spray products such as deodorants, these 'aerosols' are a generic scientific term: Very small particles, known as aerosols, also affect our climate. They are formed by emissions from sources such as power stations and transport. They scatter sunlight, which would otherwise reach the surface of the earth, back out to space and therefore have a cooling influence on the climate. Their influence can also be important in heavily polluted regions. But unlike greenhouse gases, the lifetimes of aerosols are short and they do not accumulate in the atmosphere. Measures are being taken in Western Europe and North America to reduce sulphur emissions, mainly to tackle acid rain, and this will cut the level of aerosols.

greenhouse gases

According to Defra, 2005:

Note: The figures listed in the table below are the 1995 GWP values. Whilst the Global Warming Potentials have since been updated, the Kyoto Protocol states that "global warming potentials used by Parties [to the Protocol] should be those provided by the Intergovernmental Panel on Climate Change in its Second Assessment Report ('1995 IPCC GWP values')…". The UK National Atmospheric Emissions Inventory (NAEI) - funded by Defra, The National Assembly for Wales, The Scottish Executive and The Department of Environment, Northern Ireland - compiles the UK's annual greenhouse gas inventory for submission to the UN Framework Convention on Climate Change. The emissions inventory contains information on greenhouse gas, emissions from fuel consumption industrial production, agriculture and land use change and forestry. It also provides a disaggregated inventory for England, Scotland, Wales and Northern Ireland. (NAEI link is below.)

greenhouse gases listing

Greenhouse Gas

Lifetime (Years)

100 Years Global-Warming Potential

Carbon Dioxide






Nitrous oxide













































Methylene chloride



Sulphur hexafluoride



























Acknowledgements to Defra.

This is Defra's explanation how to compare the relative climate effects of greenhouse gases:

1. To compare the relative climate effects of greenhouse gases, it is necessary to assess their contribution to changes in the net downward infra-red radiation flux at the tropopause (the top of the lower atmosphere) over a period of time. Ultimately the best way to do this is by comparing different emission scenarios in climate models, but a simple working method has been derived for use by Parties to the UNFCCC. This provides the relative contribution of a unit emission of each gas, relative to the effect of a unit emission of carbon dioxide integrated over a fixed time period. A 100-year time horizon has been chosen by the Convention in view of the relatively long time scale for addressing climate change.

2. The factor is known as a global warming potential (GWP). It means for example, that 1 tonne of HFC-134 emitted to the atmosphere has 1,000 times the warming potential over 100 years of 1 tonne of carbon dioxide.

3. To compute the carbon dioxide equivalent of the emission of any gas, we multiply its emission by the GWP. This is often expressed as the carbon equivalent so we then multiply by 12/44, the ratio of the atomic weights of carbon and carbon dioxide. Thus, for example, an emission of 1 tonne of HFC-134 is equivalent to 1 x 1000 x 12/44 = 273 tonnes of carbon.

Defra summarises potential world climate change thus:

"...future Climate change is one of the most serious environmental threats facing the world today. Its impacts will be felt across the world, as sea level rise threatens the existence of some small island states and puts millions of people at risk. Temperature increases, drought and flooding will affect people's health and way of life, and cause the irreversible loss of many species of plants and animals. Average global surface temperatures have increased by 0.6°C over the 20th century. The ten hottest years on record have all occurred since the beginning of the 1990's. According to the Intergovernmental Panel on Climate Change (IPCC) the strong warming of the last 50 years cannot be explained by natural climate variations alone, but requires the inclusion of the effects of human emissions. Much of the observed rise in sea-level (10-20cm) during the 20th century may be related to this increase in global mean temperatures. Current climate models predict that global temperatures will rise by a further 1.4 to 5.8°C by the end of the 21st century. Global mean sea levels are also predicted to rise by 9-88 cm by 2100.."

And Defra expands on the key impacts of climate change and potential UK scenarios:

global climate change

Irrespective of the effectiveness of current policies in reducing emissions of greenhouse gases, the world will now experience a significant degree of climate change. This is likely to have far-reaching effects on all aspects of the world's environment, economy and society including:

  • Sea level is expected to rise by over 40 centimetres by the 2080's because of thermal expansion of the oceans as temperatures rise and because of melting of land ice. This will threaten the existence of some small island states and put millions of people at risk
  • The poorest countries are likely to be the most vulnerable to the effects of climate change. 60% of the additional 80 million people projected to be at risk of flooding are expected to be in Southern Asia (Pakistan, India, Sri Lanka, Bangladesh and Myanmar) and 20% in South East Asia (from Thailand to Vietnam, including Indonesia and the Philippines)
  • Africa is expected to experience significant reductions in cereal yields, as are the Middle East and India. And an additional 290 million people could be exposed to malaria by the 2080's, with China and Central Asia likely to see the largest increase in risk
  • In some areas, water resources for drinking and irrigation will be affected by reduced rainfall or as ground water in coastal zones suffers from salination as sea levels rise. People's lives may be put at risk from an increased frequency of droughts and flooding. An additional three billion people could suffer increased water stress by 2080. Northern Africa, the Middle East and the Indian subcontinent will be the worst affected
  • By the 2070's, large parts of northern Brazil and central southern Africa could lose their tropical forests because of reduced rainfall and increased temperatures. If this happens, global vegetation which currently absorbs carbon dioxide at the rate of some 2-3 gigatonnes of carbon (GtC) per year will become a carbon source generating about 2 GtC per year by the 2070's and further adding to carbon dioxide build up in the atmosphere. (Current global man-made emissions are about 6-7 GtC per year).

climate change impact on UK

New climate change scenarios were launched by Defra in April 2002 (see the UK Climate Impacts Programme - UKCIP - link below - the UK Climate Impacts Programme - UKCIP - provides scenarios that show how our climate might change and co-ordinates research on dealing with our future climate. UKCIP shares this information, free of charge, with organisations in the commercial and public sectors to help them prepare for the impacts of climate change).

The UKCIP data shows that average annual temperatures across the UK may rise by between 2° and 3.5°C by the 2080's, with the degree of warming dependent on future levels of greenhouse gas emissions. In general there will be greater warming in the UK's south and east than in the north and west. High summer temperatures will become more frequent and very cold winters will become increasingly rare. For example, a very hot August, such as that experienced in 1995 may occur as often as two years in three by the 2080's under the higher emissions scenarios. It is not just temperatures that will change in the UK, but also rainfall amounts and frequency. Winters will become wetter and summers may become drier across all of the UK. The largest relative changes will be in the south and east where summer precipitation (rain in other words...) may decline by up to 50% by the 2080's. Heavy winter precipitation will become more frequent, but the amount of snow could decline by 60% - 90% by the 2080's. In addition, sea levels will continue to rise and could be between 26 and 86 cm above the current level in south-east England by the 2080's. Extreme high water levels, which currently have a 2% annual probability of occurring, could become 10 to 20 times more frequent at some east coast locations by the 2080's.

© Defra extracts are Crown Copyright 2005, from the Defra website, (link below). Crown copyright details


UK emissions reductions performance

In a separate statement kindly provided to me by HM Revenue and Customs (was Customs and Excise), this seems to be the official view as at August 2005:

"UK greenhouse emissions are provisionally estimated to have fallen by 14 per cent between 1990 and 2003 and carbon dioxide emissions by 7 per cent. Emissions increased by a provisional 1.5 per cent between 2002 and 2003, largely due to increased coal burn for electricity generation, but the downward trend is projected to resume in future years. The latest available projections show that UK carbon dioxide emissions will be about 14 per cent below the 1990 level, and that emissions of all greenhouse gases will be around 20 per cent below 1990 levels by 2010. The UK is still on track, therefore, to meet its Kyoto commitment to reduce greenhouse gas emissions by 12.5 per cent between 2008 and 2012. However, the projections show the UK falling short of the domestic goal of a 20 per cent reduction in carbon emissions by 2010. The Government has launched a review of the UK Climate Change Programme to examine the success of existing policies and consider the scope for further emission reductions..."

(HM Revenue and Customs Aug 2005)


HM Revenue & Customs Climate Change Levy Information

Energy Saving Trust

The Carbon Trust

UK Climate Impacts Programme (UKCIP)

NAEI (UK National Atmospheric Emissions Inventory)

DEFRA (Dept for Environment, Food and Rural Affairs

Climate Research Unit - based at the University of East Anglia, a leading institution in the study of natural and anthropogenic climate change.

Enhanced Capital Allowances (ECA) Scheme

The United Nations Framework Convention on Climate Change

The Hadley Centre for climate prediction and research - part of the Met Office, provides a focus in the United Kingdom for the scientific issues associated with climate change. The Hadley Centre's two main objectives are to develop the best possible regional and global predictions of climate change, and to assess current climate change and its attribution to human influences.

The Tyndall Centre - a national UK centre for trans-disciplinary research on climate change funded by the research councils. It is dedicated to advancing the science of integration, to seeking, evaluating and facilitating sustainable solutions to climate change and to motivate society through promoting informed and effective dialogue.

Intergovernmental Panel on Climate Change (IPCC) - established by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP) in 1988. IPCC assesses the scientific, technical and socio-economic information relevant for the understanding of the risk of human-induced climate change.



I am grateful to Gary Mills for advising on this article.

see also


© Gary Mills & Alan Chapman 2005-2014

Please see additional referencing/usage terms below.