United Kingdom

UK-5:Climate Change Levy (CCL)

Policy Description

The Climate Change Levy (CCL) was introduced in 2001 as a tax on the business use of energy, providing an incentive to conserve energy. The levy does not apply to fuels used by the domestic or transport sector, or fuels used for the production of other forms of energy (e.g. electricity generation) or for non-energy purposes. Participants in the Climate Change Agreements (CCAs, see UK-1) are exempted from 65% of the value of the CCL.

Description

The Climate Change Levy (CCL), introduced in 2001 is a tax applied to energy consumption by businesses and the public sector and is automatically added to energy bills.  It applies to all energy consumption across industrial, commercial and public sectors, although different rates apply to different sources of energy [1].

The UK HM Revenue and Customs defines four groups of taxable commodities under the Climate Change Levy:

  • electricity
  • natural gas when supplied by a gas utility
  • liquid petroleum gas (LPG) and other gaseous hydrocarbons in a liquid state
  • coal and lignite; coke, and semi-coke of coal or lignite; and petroleum coke

The Climate Change Levy does not apply to taxable commodities supplied for use by domestic consumers or to charities for non-business use. CCL is charged at a specific rate per unit of energy. There is a separate rate for each of the four categories of taxable commodity. The rates are based on the energy content of each commodity and are expressed in kilowatt-hours (kWh) for gas and electricity, and in kilograms for all other taxable commodities [2].

To maintain the levy’s environmental impact, rates are increased on a yearly basis in line with inflation.

The levy is also tied to the Climate Change Agreements. Participants of the CCAs are granted an exemption of up to 90% of the levy (*1).

The Climate Change Levy rates are applicable as below (*2):

 

April 2013

April 2014

Units

Electricity

0.524

0.541

p/kWh

Natural Gas

0.182

0.188

p/kWh

LPG

1.172

1.210

p/kg

Any other taxable commodity

1.1429

1.476

p/kg

 

 

Previously fuels used to generate electricity were exempt from the CCL. A new tax was introduced through the Finance Act 2013 called the Carbon Price Support (CPS) where generators with >2MW capacity pay the CPS on fuel used to generate electricity. For CHP plants (>2MW) the CPS is paid on the proportion of fuel (coal, gas, LPG) used to generate electricity [6] and (*2).

The rates are detailed below:

Fuel

CPS Rate (2013)

CPS Rate (2015)

Units

Gas

0.091

0.334

p/kWh

LPG

1.46

5.307

pp/kg

Coal

44.264

162.534

p/GJ

 

Policy Information Expand this section for information on the key features of the policy, such as its date of introduction, categorization, main objective(s) and linkages with other policies.

Policy Categorisation

Policy Instrument Type: Economic, Tax

Position in the Pyramid

About Us

Participation: Voluntary

Period

Start Date: 2001

End Date: 2023

Policy Linkages

Complements Climate Change Agreements (CCA) Effort Defining

Agencies Responsible

Department of Energy and Climate Change
HM Revenue and Customs

Primary Objective: Energy

Objective

By increasing the costs of energy it helps to strengthen the price signal attached to energy use and encourages reductions in energy demand and improves the business case for investment in energy efficiency projects [1].

Target Group

It applies to all energy consumption across industrial, commercial and public sectors, although different rates apply to different types of energy

Driver of energy consumption or emissions affected by policy: Energy efficiency and carbon dioxide emission reductions within the industry companies in the broad sense.

Implementation Information Expand this section for information on targets, monitoring, verification and enforcement regimes, and implementation requirements and tools.

Coverage

It applies to all energy consumption across industrial, commercial and public sectors, although different rates apply to different types of energy (*2)

Quantitative Target? no

Target: Specific targets for each sector/company are set with the linked Climate Change Agreements (see UK-1)

Progress Monitored? yes

Monitoring Done By

Organisation Type Organisation Name
Government Agency Environment Agency

Verification Required? yes

Verification Done By

Organisation Type Organisation Name
Government Agency Department of Energy and Climate Change

Enforced? yes

Enforcement By

Organisation Type Organisation Name
Third Party Accredited verifier: United Kingdom Advisory Service

Requirements on the Target Group

In order to be exempt from the CCL, participants need to adhere to the CCAs requirements (see UK-1). If participants are non-compliant with the CCAs and do not pay the buy-out fee they lose their tax exemption (see Uk-1 for more details).

Support by Government

The Government grants a discount of 90% for electricity and 65% for other fuels from the climate change levy (CCL) for those sectors that meet their targets for improving their energy efficiency or reducing carbon emissions  (see UK-1)(*2).

Implementation Toolbox

The following tools are provided to support implementation of the Climate Change Levy:

  • Levy Exemption Certificate
  • Tools provided to help companies comply with CCAs (see UK-1)
  • Energy saving, carbon management advice and financial support from the Carbon Trust

Complexity of Implementation

Government

The government needs to verify the energy savings claimed by the sectors and companies, and verify the exemption for the climate change levy.

Target Group

Companies/sector need to submit their energy saving target, and annually need to report on their achieve energy savings

Impacts, Costs & Benefits Expand this section to find information on policy effectiveness and efficiency.

Impact Quantitative Estimate Qualitative Estimate
Estimated effect on energy consumption or emissions ­During the fifth target period (2008-2010) 28.5 million tonnes per year of CO2 emissions were saved in total compared to sector base years (sector base years vary, depending upon the sector, and range from 1990 to 2008) [4].
Estimated costs/benefits for industry Industry is saving over £1.5 billion (€1.77b) a year on its energy costs in addition to the savings on the Climate Change Levy itself (£350m (€413m)) [5]. CCAs bring a net benefit—i.e. negative cost to the UK of £90 for every tonne of carbon dioxide the policy saves. Overall, targets in all five periods to date have been significantly exceeded.
Estimated cost for government ­£9.5m (net present value of costs for the period 2012-2020) [6] .
Other Benefits
General Benefits Improves efficiency, reduces emissions of other air pollutants, lower costs, improves competitiveness and new market opportunities

References & Footnotes

References

[1] DECC (2011). UK Report on Articles 4 and 14 of the EU End-use Efficiency and Energy Services Directive (ESD). July 2011.

[2] HM Revenue & Customs website. Available from: http://customs.hmrc.gov.uk (information retrieved on September 2012)

[4] AEA (2011) Climate Change Agreements – Results of the Fifth Target Period Assessment, October 2011

[3] Matthieu Glachant, Gildas de Muizon (2006). Climate Change Agreements in UK: A Successful Policy Experience?. CERNA, Paris, April 2006

[6] Department of Energy and Climate Change (DECC) (2010). Impact Assessment of Proposed Reforms to the Structure of Climate Change Agreements, 2010

[5] Pender, Defra, UK Climate Change Programme Business and Public Sector Economic Instruments: http://www.unido.org/fileadmin/user_media/Services/Energy_and_Climate_Change/EPU/Pender.pdf

[7] HM Revenue and Customs (2013). Carbon Price Floor. Available at http://www.hmrc.gov.uk/tiin/2012/tiin4013.pdf

Footnotes

(*1) Originally the tax relief was 80%. This was reduced to 65% in April 2011. From 1 April 2013, the rate will remain at 65% for all fuels except electricity, which will be increased to 90% [6]

(*2) Actual CCL rates can be found at the site of HM Revenue and Customs (HMRC) at http://www.legalregister.co.uk/legal_register/legislation/fabex/14

Other Useful Resources