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.