The Climate Change Levy, explained.

What the levy is, and what it sits on

The Climate Change Levy was introduced by Schedule 6 to the Finance Act 2000. It is a tax on the supply of energy to business and the public sector, designed to make using less of it worth more. It is not a network charge, not a policy levy recovered through the industry codes, and not something your supplier sets. Your supplier is the taxable person: it charges you the levy and accounts for it to HMRC.

That distinction matters when you are reading a bill. Almost every other line below the unit rate is a non-commodity charge set by a network operator, the system operator or a scheme administrator. The levy and VAT are the only two set by HMRC, and they behave differently: they change on a date fixed years ahead by a Finance Act, they do not vary by region, and no amount of load shifting reduces them.

Four taxable commodities carry it. Electricity and gas are charged per kilowatt hour, liquefied petroleum gas and every other taxable commodity per kilogram. Carbon Price Support rates are separate, paid by generators on the fuel they burn and frozen from 1 April 2016 to 31 March 2028. They never reach a consumer bill.

Gas has caught electricity up: 0.672p per kWh in 2023/24 against 0.775p, and identical to it since April 2024. LPG has been frozen across every year HMRC currently publishes, while the rest are uprated with inflation.

Who pays it, and who is outside it

The default is that a business supply carries the levy. The exclusions are not generous, they are specific, and each has a procedure attached.

The last row is the question we are asked most often. The renewable source exemption survives only where you generate the electricity yourself, or buy it direct from the generator under a contract with no intermediary taking ownership in between.

The three routes that reduce it, and the one that does not

Start with the correction, because it is the most expensive misunderstanding in this subject. An energy intensive industries exemption certificate does not remove the Climate Change Levy, and never has. It removes a certified proportion of four policy levies: Contracts for Difference, the Renewables Obligation, the Feed-in Tariff and the Capacity Market. The levy is a tax under a different statute with different qualifying tests, and the certificate leaves it untouched. What the certificate does do is in the EII exemption guide.

1. A Climate Change Agreement

A Climate Change Agreement is a voluntary agreement between an eligible energy intensive facility and the Environment Agency to hit an energy efficiency or carbon target, in exchange for the reduced rate of the levy. For 2026/27 and 2027/28 the discount is 92% on electricity, 89% on gas, 77% on LPG and 89% on any other taxable commodity. Paragraph 42 of Schedule 6 states the same thing the other way up, as the percentage of the main rate a reduced-rate supply pays: 8% on electricity, 23% on LPG, 11% on everything else.

You apply through your sector association, not directly. The current scheme runs from 1 January 2026 to 31 December 2030, with target period 7 covering 2026 and reported by 1 May 2027, target period 8 covering 2027 and 2028, and target period 9 covering 2029 and 2030. A facility not already in the scheme can apply to join an existing umbrella agreement between 1 January and 31 August in each year from 2026 to 2029.

2. A supply that is already outside the levy

A supply for domestic use or for the non-business activities of a charity is excluded from the main rates outright, and so is a small supply. The de minimis limits are 1,000 kWh of electricity a month to one customer at any one of that customer premises, and 4,397 kWh of gas. Within those limits the supply is automatically treated as domestic, no certificate is needed and no levy is due. Note that the two fuels differ here even though their main rates no longer do, so a business outside the levy on its electricity is not automatically outside it on its gas.

These exclusions are built on the qualifying use provisions that govern the reduced rate of VAT, which is why the two travel together and why people conflate them. They are not the same thing. What puts a supply outside the levy is the qualifying use or the de minimis threshold, not the VAT percentage printed on the invoice. A meter billed at 5% VAT with no qualifying use declaration behind it owes the levy in full, and the temporary removal of VAT from qualifying electricity supplies from 1 October 2026 changes nothing about the levy at all.

3. The mineralogical and metallurgical exemptions

Since 1 April 2014, energy used in a mineralogical or metallurgical process has been exempt from the main rates. The qualifying processes are listed in Annex A of the notice and they are industrial rather than incidental: electrolytic refining of aluminium waste, production of iron of exceptional purity by electrolysis, forging and pressing of metal. They overlap with the sectors a Climate Change Agreement covers, and the notice says so: a business that becomes wholly exempt this way may leave the CCA scheme, and one only partly exempt keeps its agreement for the rest.

Alongside them sits the non-fuel use exemption, for energy used as something other than heating fuel or motive power. It is narrow by design. Electricity used in electrolysis to produce hydrogen is exempt; electricity powering the compressor that compresses the hydrogen afterwards is not.

How a relief reaches the invoice

None of these apply themselves. The PP10 sets out the reliefs you claim and produces one overall percentage. The PP11 carries that percentage to your supplier, which must process a correctly completed certificate within five working days. A certificate lasts five years at most and must be reviewed no later than the sixtieth day after each anniversary. Claim too much and the excess becomes a taxable self-supply you have to register and account for.

How the amount is worked out

The arithmetic is the simplest on the bill. There is no loss adjustment, no time band, no region and no capacity element. It is the statutory rate for the commodity, times the units supplied, less whatever relief is certified.

A period crossing 1 April has to be split, each part priced at the rate in force for the days it contains. That is the most common arithmetic error on this line, and it is worth 3.4% of the levy on the days that fall the wrong side of the boundary in the year the rate moved from 0.775p to 0.801p.

Worked through at the 2026/27 rates

Take a site consuming a million kWh of electricity across 2026/27. The consumption is an assumption; the rates are not.

Consumption assumed, over the year

1,000,000 kWh

Main rate for 2026/27, per kWh

0.801p

Levy with no relief, 1,000,000 x 0.801p

£8,010.00

With a Climate Change Agreement, at 8% of the main rate

£640.80

What the agreement is worth on this site

£7,369.20

That is the headline case, and it assumes the agreement covers everything the meter serves. An agreement covers an eligible facility, not a supply point. Where the meter also feeds offices, a second unit or space the agreement does not reach, the discount arriving on the invoice is the scheme percentage times the covered share.

Relieved volume, 70% of 1,000,000 kWh, at 8% of 0.801p

£448.56

Unrelieved volume, 300,000 kWh at 0.801p

£2,403.00

Levy payable on the meter

£2,851.56

The same figure as a blended rate, 0.801p x 35.6%

0.285156p per kWh

The two routes agree, which is the point of showing both. A supplier applying the full 92% to this meter would under-charge the levy by £2,210.76 on the year, and that is a liability rather than a saving.

Where it appears on your invoice

The levy is usually shown, because a supplier has to evidence what it charged. What varies is the name and what it is grouped with.

Two placement rules are worth knowing. The levy sits inside the VAT base, so VAT is charged on it: on a standard-rated supply every extra penny of levy costs 1.2 pence. And on a pass-through contract it is the one line the supplier has no discretion over and no reconciliation to come back with, because there is no rate it could be billed at but the statutory one.

How to check it

Nobody reconstructs this line, because it looks too simple to be wrong. Five things are worth confirming, in this order.

• The tax year. The rate changes on 1 April. A period spanning it has to be split, and a bill priced at one rate across the boundary is wrong in one direction or the other.
• The rate. One national figure per commodity, with no regional variant and no band. A rate that is not the statutory one is either a relief being applied or an error.
• The units. The quantity on the levy line should equal the consumption billed above it. A mismatch usually means one of the two was restated and the other was not.
• The relief percentage. Against your own PP11, not against the scheme headline. A certificate saying 64.4% against a bill applying 92% is an under-charge you will have to repay.
• The VAT base. VAT should be charged on a total that includes the levy. A bill that adds the levy afterwards has under-charged the VAT, and that correction arrives later.

What is changing

The rate for 1 April 2027 is already law: 0.827p per kWh on electricity and gas, 6.468p per kilogram on any other taxable commodity, LPG frozen again at 2.175p. On a million kWh that is £260 a year more than 2026/27.

The non-fuel use exemption moved this year. Hydrogen production by electrolysis joined the list of wholly non-fuel uses on 12 March 2026, following a consultation that ran from 26 March to 7 May 2025 and that also committed government to a wider review of the levy. That review is the thing most likely to change this guide.

On the agreements side, certification period 7 runs to 30 June 2027, the administrator is required to keep administering the scheme to 31 March 2033, and no facility can be added to an umbrella agreement after 1 January 2030.

Deep dives and edge cases

These come up often enough to answer, and not often enough to interrupt the main path.

Questions