Draft Climate Change Agreements (Administration, Energy intensive Installations and Eligible Facilities) (Amendment and Revocation) Regulations 2026

The Committee consisted of the following Members:

Chair: Pete Wishart

† Bacon, Gareth (Orpington) (Con)

† Barron, Lee (Corby and East Northamptonshire) (Lab)

† Craft, Jen (Thurrock) (Lab)

Farron, Tim (Westmorland and Lonsdale) (LD)

† Ferguson, Mark (Gateshead Central and Whickham) (Lab)

† Heylings, Pippa (South Cambridgeshire) (LD)

† Hinder, Jonathan (Pendle and Clitheroe) (Lab)

† Hume, Alison (Scarborough and Whitby) (Lab)

† Lam, Katie (Weald of Kent) (Con)

† McKenna, Kevin (Sittingbourne and Sheppey) (Lab)

Mohamed, Abtisam (Sheffield Central) (Lab)

† Pakes, Andrew (Peterborough) (Lab/Co op)

† Stephenson, Blake (Mid Bedfordshire) (Con)

† Strathern, Alistair (Hitchin) (Lab)

† Taylor, Alison (Paisley and Renfrewshire North) (Lab)

† Tomlinson, Dan (Exchequer Secretary to the Treasury)

† Wild, James (North West Norfolk) (Con)

Anne Marie Griffiths, Jodie Willcox, Committee Clerks

† attended the Committee

Third Delegated Legislation Committee

Tuesday 23 June 2026

[Pete Wishart in the Chair]

Draft Climate Change Agreements (Administration, Energy intensive Installations and Eligible Facilities) (Amendment and Revocation) Regulations 2026

I beg to move, That the Committee has considered the draft Climate Change Agreements (Administration, Energy intensive Installations and Eligible Facilities) (Amendment and Revocation) Regulations 2026.

It is a pleasure to serve with you in the Chair, Mr Wishart. The draft regulations expand the eligibility for the climate change agreements scheme to include three new processes—the mechanical recycling of plastic, the packaging of spirits and the production of automotive grade battery cells—as well as clarifying the existing eligibility and administrative requirements for the scheme and updating the carbon emissions factor figure used in the buy out fee for the scheme.

The climate change levy was introduced in 2001 for the purpose of encouraging energy efficiency across our economy by taxing energy supplies such as electricity or gas. From the outset, the tax has included the CCA scheme, a voluntary scheme that provides eligible energy intensive businesses access to significant discounts on their CCL bill in exchange for meeting negotiated energy efficiency or carbon reduction targets.

As a tax designed to drive efficiency, the CCL should accommodate the changing energy landscape. We therefore propose to extend the eligible processes within the CCA scheme to include the three I have already mentioned. Those processes meet the scheme’s established eligibility tests, thereby demonstrating that they are sufficiently energy intensive and, where applicable, subject to competition from imports. Their inclusion is consistent with existing policy and continues to support the Government’s objectives of delivering affordable and secure energy and decarbonisation, while also helping to drive growth.

In summary, the regulations give effect to the Government’s decision to extend the eligible processes within the CCA scheme to include the production of automotive grade battery cells, the packaging of spirits and the mechanical recycling of plastics. I commend the regulations to the Committee.

It is a pleasure to see you in the Chair, Mr Wishart, presiding over our proceedings. Given the origin of this measure, with the policy work that underpins it having begun under the previous Government, we will not oppose it, but as the Minister may expect, I have a few questions for him.

The climate change agreements allow eligible facilities to reduce their energy use and, in exchange, pay reduced rates of the climate change levy. The discounts can be significant—up to 92% on electricity. The regulations make three changes: they expand the scheme to include the three new processes the Minister referred to, they consolidate the existing eligibility rules and they correct a numerical error in the formula used to calculate buy out fees.

The consultation that preceded the changes was launched in November 2023 and closed in February 2024. Applications were made for the inclusion of seven processes, and in October the Government announced that the production of automative grade battery cells, the packaging of spirits and the mechanical recycling of plastics were all to be included. The changes do not take effect until January 2027, over three years after the consultation opened—a lengthy process, as I am sure you will agree, Mr Wishart—and the response to the consultation highlighted that more time was needed. Will the Minister explain why the process has been so lengthy?

As I mentioned, applications were made for the inclusion of seven processes, and three were selected. I have looked into it but was unable to find the information, so perhaps the Minister can tell us what the other processes were and explain the basis on which they were rejected. I would also be interested to know whether there is the potential for those sectors to be given further opportunities to apply.

I will not dwell on the buy out fee correction, because the adjustment goes to four decimal places. I am not sure that will have a substantial impact, but I would be grateful for the Minister’s reassurance on that.

I have previously welcomed the Government’s decision to extend the climate change agreements scheme for a further six years. When businesses are facing headwinds, the extension offers much needed respite. Nevertheless, as all Members will know, British manufacturers pay considerably more for energy than their competitors. Compared with the EU, UK firms pay 50% more, and the gap between the UK and America is much larger.

Excessive energy costs are undermining our growth and productivity prospects, yet in the most recent Finance Act, the Government raised the climate change levy rate, at a cost to business of £2 billion a year. That is a significant burden on businesses that are already struggling. We need cheaper energy, which is what the Conservative’s cheaper energy plan would deliver.

We welcome the lightening of the load on businesses, and we support the agreements, but the Government should stop adding levies and costs to the energy bills of companies and individuals, and instead look to remove them. We will not oppose the statutory instrument, but I look forward to hearing the Minister’s answers to my questions.

It is a pleasure to serve under your chairship, Mr Wishart.

It is positive that the Government are looking at costs and energy bills for businesses and non domestic consumers. Extending the scope of the climate change agreements scheme is a good step to support our industries in the transition. Decarbonising our industry, and encouraging energy intensive businesses to be more energy efficient and to transition from fossil fuels to clean energy, will be vital to meeting our carbon targets. That could not be more relevant than in this week: not only is it London Climate Action Week, but for the first ever time we have a UK Health Security Agency red alert for extreme heat. Climate change is no longer a future threat; it is here with us now.

We must do all we can to decarbonise and avoid the worsening of climate impacts on our economy and way of life, so it is right to include the three processes the Minister mentioned—the mechanical recycling of plastic, the packaging of spirits and the production of automative grade battery cells—in the reduced rates scheme. Ultimately, to decarbonise industry we need a package of policies, including ones to make low carbon actions and technology viable for businesses.

We Liberal Democrats feel that the Government also need to take steps to simplify the current energy tax system, and that once the emissions trading scheme is fully effective in the UK, complicated taxes such as the carbon price support and the climate change levy should be abolished. I would like to hear the Minister’s thoughts on that.

As we have heard, the price of energy is currently a huge and disproportionate burden for our businesses, across sectors, compared with other countries, which makes the UK less competitive. We need to take action to help businesses—not just energy intensive businesses but the many small business that are currently left exposed to exorbitantly high energy costs—to decarbonise and have affordable bills. If the Government are serious about meeting our climate targets and driving British industry forwards, we need action and ambition to help to support businesses and industries to stay competitive.

As ever, I thank the shadow Exchequer Secretary and the Liberal Democrat spokesperson for their contributions and questions.

I agree with the shadow Exchequer Secretary that lengthy consultations can be a frustration—they are the bane of my life too. Of course, we need to make sure that we engage and listen, but it is always good to be as quick as we possibly can be. There is a gap between now and when the changes will come into effect because the Environment Agency requires numerous administrative processes to be completed before facilities from newly eligible sectors can join a scheme. We of course always look to make sure that we can speed up such administrative processes.

I will follow up in writing with details as to why the non successful processes were not successful; I do not have that information at my fingertips today, but I look forward to reading the letter and sending it to the shadow Exchequer Secretary. I can confirm that the four processes that applied but were not successful were two relating to tire retreading, one relating to the roll turning of plastics and one relating to water. I will write to the hon. Gentleman on those points in due course.

The shadow Exchequer Secretary is right that there is a very minor change in a complicated formula from 0.0497 to 0.0498. I am assured that that is about helping to make sure the Government do these things properly, and that the resultant changes will not be significant.

The shadow Exchequer Secretary is right to point out that we have high energy costs in this country. We need to bring them down. We are not going to take the approach of the previous Government of saying no to new nuclear power stations over and over again, and we are not going to take the approach of the previous Government of not investing in our energy security. Instead, we are going to get a range of different energy sources into our energy mix so that we can get prices down. The Chancellor proactively made the decision at the last Budget to take £150 off energy bills for families across the country, which was very welcome indeed.

The Liberal Democrat spokesperson mentioned how she would like to see the carbon price support removed. I have good news for her: just a few short weeks ago we announced that we are removing it. I am disappointed that she did not hear that exciting news. It is a very niche tax, but it is important that we are removing a tax that had become outdated and was not fit for purpose given the current structure of our energy market. I do like to make sure that we get rid of taxes.

I agree with the hon. Lady that we need action and ambition on decarbonising our electricity network. We must take the steps we need to take to get clean power and to make sure that we meet our net zero obligations, not just for ourselves but for future generations and for the world. We owe it to all of humanity to make sure that, in a reasonable and careful way, we make progress towards decarbonising our economy. I commend the regulations to the Committee.

Question put and agreed to.

Committee rose.