Climate change agreements: the Climate Change Levy
What is the Levy?
The Climate Change Levy (CCL) is a tax on the use of energy in industry, commerce and the public sector. There are offsetting cuts in employers' National Insurance Contributions and additional support for energy efficiency schemes and renewable sources of energy.
When was the Levy introduced?
The levy was introduced on 1st April 2001.
Why was a Levy introduced?
The aim of the levy is to encourage users to improve energy efficiency and reduce emissions of greenhouse gases.
The levy forms a key part of the Government's overall Climate Change Programme. The basic design of the levy follows the recommendations made in Lord Marshall's report Economic Instruments and the Business Use of Energy, published in October 1998.
What are the benefits?
The levy is playing a major role in helping the UK to meet its targets for reducing greenhouse gas emissions. It entails no increase in the tax burden on industry as a whole and no net gain for the public finances. The reforms are intended to promote energy efficiency, encourage employment opportunities and stimulate investment in new technologies.
The Government is returning the revenues from the levy to the non-domestic sector, principally through a cut in the rate of employers' National Insurance Contributions of 0.3 percentage points. Businesses are also benefiting from schemes aimed at promoting energy efficiency and stimulating the take-up of renewable sources of energy, eg solar and wind power. There is also a scheme of 100% first year capital allowances for certain energy saving investments.
Who does the Levy apply to?
The levy applies to industrial and commercial energy supplies in the following sectors: industry, commerce, agriculture; and public and service sectors.
The levy does not apply to fuel supplies to domestic consumers or the transport sector, or fuels used for the production of other forms of energy (eg electricity generation) or for non-energy purposes. The levy does not apply to energy used by registered charities for non-business use, and domestic level energy supplies used by very small firms (ie roughly equivalent to the energy used by a six-bedroom house).
Taxable energy supplies that are subject to the levy include: natural gas, electricity, petroleum and hydrocarbon gas in liquid form, coal, lignite and coke. The levy does not apply to oils, which are already subject to excise duty.
What are the current Levy rates?
The latest levy rates can be found at the HM Revenue and Customs web site.
Are there any exemptions?
There are several exemptions from the levy, including:
- Electricity generated from new renewable energy (eg solar and wind power)
- Fuel used by good quality combined heat and power schemes ("Good Quality CHP" - certified via the CHP Quality Assurance Programme CHPQA)
- Fuels used as a feedstock
- Electricity used in electrolysis processes, for example, the chlor-alkali process, or primary aluminium smelting.
The Levy is added to bills before VAT and, although there is no legal requirement for it to be shown, is likely to appear as a separate item on energy bills.
Want to know more?
The purpose of the levy is to reduce greenhouse gas emissions, not to raise tax. Consequently, the Government has put in place a range of measures to assist energy users to improve their energy efficiency. The measures are as follows:
There are a number of other web pages or sites which give information relevant to the climate change levy package:
- UK Emissions Trading Scheme - details of how CCA holders can use the UK registry to buy or sell allowances and changes to UK ETS rules relating to CCA reporting
- The HM Revenue and Customs web site has further information relating to the design and implementation of the Levy.
Who should I contact more information?
For further information on the administration of the levy, please contact HM Revenue & Customs (email: Enquiries.estn@hmrc.gsi.gov.uk or telephone: 0845 010 9000).
Page last modified:
5 December, 2008
Page published: 5 December, 2008