Climate Change Levy: changes to rates from 1 April 2026
Published 30 October 2024
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Who is likely to be affected
Business and public sector users of energy; gas and electricity utilities and suppliers of solid fuels and liquefied petroleum gas (LPG).
General description of the measure
The government will raise the rates of Climate Change Levy in line with the Retail Price Index on electricity, gas, and solid fuels from 1 April 2026. The rate of LPG will continue to be frozen.
Policy objective
By raising the rates of electricity, gas, and solid fuels in line with the Retail Price Index this measure ensures that Climate Change Levy keeps pace with inflation. This in turn maintains the incentive for energy efficiency.
Freezing the main rate of Climate Change Levy on LPG will continue to ensure better consistency between LPG and other portable fuels for commercial premises not connected to the gas grid.
Background to the measure
The main rates of Climate Change Levy are payable on supplies of electricity, gas, LPG and solid fuels to businesses and public sector organisations. They are applied to relevant energy bills by gas and electricity utilities in a similar way to the way in which VAT is applied to energy bills.
The climate change agreement (CCA) scheme sits alongside Climate Change Levy. Energy intensive businesses are eligible to pay Climate Change Levy at reduced rates in return for meeting challenging targets to improve energy efficiency or reduce emissions. Businesses in the scheme claim the discount from their energy supplier who charges Climate Change Levy at a percentage of the main rate in their energy bill. The impact on those paying the reduced rates (expressed as a percentage of main rates) will adjust accordingly.
The previous Government followed a trajectory of rate rebalancing over a 5 year-period — that is the gas rates were incrementally brought up to mirror those for electricity to reflect changes in the relevant carbon emissions from these commodities. In legislative terms, this involved setting new rates from 1 April each year. Rebalancing was completed in 2024.
Throughout this period LPG rates were frozen to protect the competitiveness of LPG as a heating fuel against kerosene which is taxed under Fuel Duty. Autumn Statement 2023 announced the continuation of the rates freeze for 2025 to 2026.
Detailed proposal
Operative date
The changes will have effect for supplies treated as taking place on and after 1 April 2026.
Current law
Climate Change Levy is provided for by the Finance Act 2000. The main rates are set out in paragraph 42(1) of Schedule 6 to the Act. Paragraph 42(1) (ba), (bb) and (c) provides for the reduced rates for Climate Change Agreement participants. The table in the ‘Main rates’ section details these.
Proposed revisions
Legislation will be introduced in Finance Bill 2024-25 to amend the Climate Change Levy main rates on electricity, gas, and solid fuels in paragraph 42 of Schedule 6 to Finance Act 2000.
The main and reduced rates from 1 April 2026 are as follows:
Main rates
| Taxable commodity | Rate from 1 April 2026 |
|---|---|
| Electricity | £0.00801 per kWh |
| Natural gas | £0.00801 per kWh |
| LPG | £0.02175 per kg |
| Any other taxable commodity (solid fuels) | £0.06264 per kg |
Reduced rates
| Taxable commodity | Percentage of main rate from 1 April 2026 |
|---|---|
| Electricity | 8% |
| Natural gas | 11% |
| LPG | 23% |
| Any other taxable commodity (solid fuels) | 11% |
Summary of impacts
Exchequer impact (£ million)
| 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to impact on individuals as Climate Change Levy is not levied on the supply of energy to individuals and households.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on those in groups sharing protected characteristics.
Impact on business including civil society organisations
The measure is expected to have a negligible impact on the costs for businesses using gas, electricity, and solid fuels such as coal. The cost of Climate Change Levy for businesses using these fuels will rise. One-off costs for suppliers will include familiarisation with the rate changes and updating systems to reflect the new rates. There are not expected to be any continuing administrative costs for either fuel users or suppliers.
Customer experience is expected to remain broadly the same as it does not alter how those businesses will interact with HMRC.
The measure is not expected to have an impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
HMRC’s processing systems are designed to accommodate tax rate changes. The measure will not increase HMRC processing or compliance resource.
Other impacts
Climate Change Levy is an energy tax which aims to increase energy efficiency. Maintaining in real terms this price signal means there will be no impact on expected emissions relative to the baseline.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be monitored through information collected from tax receipts.
Further advice
If you have any questions about this change, contact Joshua Blain by telephone: 03000 598 224, or email: [email protected].