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Climate Change Levy

The climate crisis is in full swing, and tackling climate change is a high priority for governments across the world. The UK government provides several environmental tax and reward schemes to incentivise businesses to increase their sustainability profile.

Among these is the Climate Change Levy, introduced in April 2001. But what does this tax mean for your business? In this article, we’ll outline everything you need to know about the Climate Change Levy.

Fergus Cole
Mike Rowe
Written by Fergus Cole
Edited by Mike Rowe
22 November 2025
5 mins read

What is the Climate Change Levy?

The Climate Change Levy (CCL) is a tax imposed by the UK government on the use of energy by businesses, designed to incentivise energy efficiency and reduce greenhouse gas emissions.

Essentially, the more energy efficient your business is and the less carbon emissions it produces, the lower your CCL bill will be.

The CCL is charged on ‘taxable commodities’ supplied for electricity, gas, and solid fuels - such as coal, lignite, coke, petroleum coke, and hydrocarbon gas in a liquid state. CCL is not charged on road fuel and any other oils that have already been subject to tax.

Theoretically, the CCL encourages businesses to consume less energy and, where possible, develop their own on-site energy sources, such as commercial solar panels or micro-hydro power systems.

Revenue generated from the CCL is used to support environmental initiatives and reduce the nation's carbon footprint.

How is the Climate Change Levy charged?

As the providers of taxable commodities, business energy suppliers charge consumers the Climate Change Levy when billing them. They then pass any money accrued from the CCL to HM Revenue & Customs (HMRC).

What are the Climate Change Levy rates?

The Climate Change Levy is paid at either the main rate or the Carbon Price Support (CPS) rate:

Main rates

All businesses that operate in the industrial, agricultural, commercial, or public services sectors will be subject to the CCL at the main rate on electricity, gas, and other solid fuels.

The amount you pay depends on how much energy your business uses. You are charged per kWh for gas and electricity and per kg for other fuels.

The current main rate between 01/04/2025 and 31/03/2026 is:

  • 0.775p/kWh for Electricity

  • 0.775p/kWh for Gas

  • 2.175p/kg for Other Fuels

Carbon Price Support rate

You pay the Carbon Price Support (CPS) rate if you own an electricity generating station or you are an operator of a combined heat and power (CHP) station.

Businesses that generate their own power through the use of wind turbines or solar panels and sell excess power back to the grid are classed as small generators and are not required to pay the CPS rate.

The current CPS rate until 31/03/2026 is:

  • 0.331p/kWh for Gas

  • 5.28p/kWh for Petroleum Gas

  • £1.5479p/GJ for Solid Fossil Fuels

Do I have to pay the Climate Change Levy?

If your business falls within one of the industrial, commercial, agricultural, or public services sectors, then you must pay the main rate of CCL.

Do I have to pay VAT on the Climate Change Levy?

Yes – Value Added Tax (VAT) is charged at the standard rate of 20% on all Climate Change Levy payments unless the supplier is exempt or has a reduced rate of VAT sanctioned.

Some examples of businesses that are typically exempt from paying VAT include:

  • Fundraising events by charities and non-profit organizations

  • Health and medical services provided by doctors, dentists, and hospitals

  • Educational services provided by schools, colleges, and universities

  • Businesses selling, leasing, or letting commercial property

Who is exempt from the Climate Change Levy?

Certain businesses do not have to pay the main rate of CCL. These include:

  • Domestic customers

  • Charities using energy for non-commercial purposes

  • Fundraising events by charities and non-profit organizations

  • Businesses that meet the following minimum use requirements:

    • Electricity supply below 1,000 kWh per month

    • Gas supply below 4,397 kWh per month

Can I reduce my business’s CCL rates?

If you want to pay a reduced main rate on the CLL, you’ll have to sign up for a Climate Change Agreement (CCA) with the Environmental Agency. This can reduce the amount you pay up to 90%, providing you hold up your side of the bargain.

You’ll be required to enhance your business’s energy efficiency and decrease your average yearly energy consumption. You’ll be given targets to meet and will have to measure and report your business’ energy usage at specified time intervals.

Businesses participating in CCAs receive support and guidance from the Environment Agency to develop and implement energy-saving measures, helping them achieve their targets more effectively.

CCAs provide a structured framework for businesses to comply with energy efficiency legislation and meet regulatory requirements, reducing the risk of penalties or sanctions.

How to reduce your business’s energy usage

There are numerous steps that you can take to make your business more energy efficient, enabling you to save money and meet your environmental goals.

  • Invest in energy-efficient equipment

    Upgrade to energy-efficient appliances, lighting, and HVAC systems. Look for products with Energy Saving Trust endorsement or ENERGY STAR certification, which meet high efficiency standards.

  • Optimise lighting

    Replace outdated lighting with energy-efficient LED bulbs and fixtures. Utilise natural light where possible and install automatic controls, such as motion sensors and timers, to minimise unnecessary lighting usage.

  • Switch off electrical appliances at night

    Electrical appliances continue to draw power when left on standby mode. Turning off everyday equipment like computers, televisions, and water coolers at the end of each working day can make a difference to your outgoings.

  • Conducting an energy audit

    Hiring a professional to perform a comprehensive energy audit of your premises to identify areas of energy wastage and inefficiency.

  • Turn off heating or air conditioning in unused spaces

    Configure your seating and working arrangements to make sure you use space optimally. Then, avoid heating or cooling rooms that you’ve left empty. Ensure your heating and air conditioning do not come on when the business premises are empty.

  • Consider microgeneration

    Explore opportunities to generate renewable energy onsite, such as solar panels or wind turbines.

  • Install a smart meter

    This will make it easier for you to monitor your energy consumption and plan accordingly.

  • Improve building insulation

    Enhance insulation in walls, roofs, windows, and doors to reduce heat loss and drafts. This will reduce the amount of central heating you use in colder months.

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