Climate Change Levy

The measure

The government announced in Budget 2018 that it would legislate in Finance Bill 2020 to equalise the main rates of climate change levy (CCL) applicable to gas and electricity. The electricity rate will be lowered in 2020/21 and 2021/22 and the gas rate will increase in these years so that it reaches 60% of the electricity main rate by 2021/22. Other fuels, such as coal, will continue to align with the gas rate.

The government announced that the rates applicable to gas will continue to rise throughout 2022/23 and 2023/24, whilst the rates applicable to electricity and LPG would be frozen.

The government has also confirmed that the climate change agreements (CCA) scheme, which enables energy intensive businesses to agree a CCL reduction with HMRC for meeting targets to improve their energy efficiency, will also be reopened and extended for two years. The scheme will now end on 31 March 2025. 


Who will be affected?

Businesses that supply gas to other business customers for consumption, or consume gas as part of their own business activities.

As CCL is typically passed onto customers, the rate increase may not present a cost for gas suppliers. However, affected suppliers should review their contracts to determine whether they are able to pass on the levy or not as any increase in CCL will present an absolute cost for the party that bears the levy.

Businesses that have either benefitted from a CCA in the past, or consider that they could benefit from a CCA in the period to 31 March 2025, should consider the scheme.


When will the measure come into effect?

The revised main rates of CCL for gas will increase to £0.00568/kWh in 2022/23, and will be followed by a further increase to £0.00672/kWh in 2023/24.

The details around the extension of the CCA scheme will be the subject of a consultation to be launched shortly.

Our view

The measures represent a continuation of the government policy to encourage businesses to act in an environmentally friendly way and, as introduced in Budget 2016, to close the gap on the amount of CCL chargeable on supplies of gas and electricity.