Climate Change Levy overview

Climate change is a pressing global issue, and businesses play a crucial role in tackling it. One of the primary tools the UK government uses to incentivise energy efficiency and reduce greenhouse gas emissions is the Climate Change Levy (CCL).

In this post, we’ll provide an in-depth look at the CCL, explaining its purpose, who it applies to, and ways you can reduce your business’ CCL liability.

The Climate Change Levy (CCL) is a tax on the energy used by businesses. It was introduced by the UK government in 2001 as part of a broader strategy to promote energy efficiency and reduce carbon emissions.

The primary aim of the CCL is to encourage businesses to adopt energy-efficient practices and invest in renewable energy sources. By taxing energy consumption, the levy creates a financial incentive for companies to reduce their energy usage, in turn lowering their carbon footprint.

The CCL is calculated based on a business’s energy consumption in kilowatt-hours (kWh). However, not all businesses are subject to the same rates, as there are exemptions and discounts available.

CCL is paid at either the main rate or the Carbon Price Support (CPS) rate, which differ in the following ways:

Main rates: Any business in the commercial, agricultural, public services and industrial sectors will be charged at the main rate on electricity, gas and solid fuel use. You’ll typically find these rates listed on your business energy bills (and we’ve included the current rates further down).

CPS rate: This is paid by owners of electricity generating stations and operators of combined heat and power stations. Any businesses that generate some or all of their own energy (through solar panels or wind turbines, for example) will usually be exempt from this charge as they’re classed as small generators.

The CCL applies to most non-domestic energy use in the UK, including electricity, gas, LPG, coal and other solid fuels. It doesn’t apply to domestic energy consumption or transportation fuels. The amount a business pays in CCL depends on their energy usage and whether they qualify for any exemptions or discounts.

Generally, the CCL applies to businesses in the industrial, commercial, agricultural, and public service sectors. However, there are specific exemptions and reduced rates available.

• Certain energy-intensive industries that have entered into Climate Change Agreements (CCAs) can receive significant discounts on their CCL payments.
• Energy derived from renewable sources, such as solar and wind, is exempt from the CCL.
• Domestic energy use and charities engaged in non-commercial activities are also exempt from the levy.

Eligible businesses aiming to pay a reduced Climate Change Levy rate can enter into Climate Change Agreements (CCAs) with the Environmental Agency.

These voluntary agreements set energy efficiency or carbon reduction targets for businesses in exchange for a substantial discount on their CCL payments. Businesses entered into a CCA will receive a 90% reduction in the CCL rate on electricity bills, and a 65% reduction on all other fuels.

By committing to these targets and demonstrating progress towards achieving them, businesses not only benefit from financial savings but also contribute to national and global efforts to combat climate change.

You can check if your business is eligible to enter into a CCA here.

If your business is eligible for a CCA, you’ll want to reduce your energy consumption and improve energy efficiency to effectively meet your targets.

If your business isn’t eligible for a CCA, it’s wise to focus on energy efficiency regardless. As the climate change levy is calculated based on consumption, the less energy you use, the less CCL you’ll pay.

Here are a few ways to make your business more energy efficient:

1. Conduct energy audits: Assess your energy usage to identify areas for improvement in energy consumption.
2. Invest in energy-efficient equipment: Upgrade to energy-efficient lighting, heating, and cooling systems.
3. Implement energy management systems: Use smart meters and energy management software to monitor and control energy usage.
4. Employee training: Educate employees on energy-saving practices.
5. Renewable energy investments: Consider investing in renewable energy sources to not only reduce CCL liability but also support sustainability goals.

The current CCL rates for the main taxable commodities are as follows:

If your business holds a climate change agreement, your CCL percentage discounts are shown below:

The rates for the Climate Change Levy are periodically reviewed and adjusted by the government. It’s important that you stay informed about these changes to accurately forecast your business energy costs. For the latest rates, you can always refer to the UK government website.

The UK government continually reviews the CCL to align with its long-term environmental goals. Future changes may include adjustments to levy rates, expansion of exemptions, and enhancements to Climate Change Agreements.

Staying up to date with policy changes is vital for businesses to adapt and remain compliant. Regularly checking official government resources and consulting with energy experts like U4L can help businesses stay informed about any updates.