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The Climate Change Levy is a tax on the energy your business uses, added to gas and electricity bills as a separate line. Most firms pay it every month without ever knowing what it is or whether they could reduce it. This guide explains what the levy is, how much it adds, who has to pay, and the reliefs that can bring it down.
In short. The Climate Change Levy is a per unit government tax on business gas and electricity, at around 0.775 pence per kWh on each from April 2025, rising to about 0.801 pence from April 2026. It sits on top of your unit rate, and VAT is then charged on the whole bill. Very low users and charities are usually exempt, and energy intensive businesses can claim large reductions through a Climate Change Agreement.
The Climate Change Levy, or CCL, was introduced in 2001 to encourage businesses to use energy more efficiently and cut carbon emissions. It applies to the electricity, gas and solid fuels supplied to businesses and the public sector. It does not apply to domestic energy or to the non business use of charities, which is why it appears on your commercial bill but not your home one.
The levy is collected by your energy supplier and passed to HMRC. On your bill it shows as its own line, charged on every kWh you use, entirely separate from the unit rate you pay for the energy itself.
The main rates are set by government and rise most years in line with inflation. From April 2025 the main rate is about 0.775 pence per kWh for both electricity and gas. From April 2026 it rises to roughly 0.801 pence per kWh on each. Those figures look tiny, but they are charged on every single unit, so on a supply using tens or hundreds of thousands of kWh a year the levy becomes a real line on the bill.
Because VAT is then applied to the whole bill, including the levy, you effectively pay a tax on a tax. That is not a loophole to fix, but it is worth knowing when you compare quotes, because a rate quoted before levy and VAT will always look cheaper than the amount you actually pay.
You pay if you are a business or public sector organisation using energy for non domestic purposes. That covers the vast majority of firms.
You are exempt if your use qualifies as domestic or is very low. Supplies at or below the de minimis threshold, the same low usage level that qualifies for reduced rate VAT, are treated as domestic and fall outside the levy. Charities using energy for non business purposes are also exempt.
✓ Standard commercial supplies pay the levy on every kWh.
✓ Very low usage sites below the de minimis threshold are treated as domestic and exempt.
✓ Charity non business use is exempt.
✗ Assuming you can simply opt out of the levy. You cannot, unless you genuinely qualify for an exemption or relief.
The main way to reduce the levy is a Climate Change Agreement, or CCA. These are voluntary agreements between an energy intensive sector and the Environment Agency, under which businesses meet energy efficiency or carbon targets in return for a large discount on the levy. The reductions are significant, historically up to around 90 percent on electricity and a smaller but still substantial share on gas.
CCAs are administered by sector trade bodies and are aimed at energy intensive industries such as manufacturing, food processing and chemicals. If your sector has a scheme and you can meet the targets, the saving on the levy can be considerable, so it is worth checking with your trade association whether you qualify.
Take a business using 200,000 kWh of electricity a year. At around 0.775 pence per kWh, the levy alone adds roughly 1,550 pounds to the annual bill, before VAT is applied on top. Add the gas supply and the figure grows further. None of that is negotiable with your supplier, because the rate is set by government, but it shows why the levy is worth understanding rather than ignoring, and why a Climate Change Agreement matters so much to the sectors that qualify for one.
You cannot negotiate the levy rate, but you can make sure you are not paying it when you should be exempt, and you can check whether your sector has a Climate Change Agreement you could join. For most businesses the levy is a fixed cost, so the real savings sit in the unit rate and standing charge you can still shop around for.
Check you should be paying it. If your usage is very low, confirm with your supplier whether you fall below the de minimis threshold and should be treated as domestic for both the levy and VAT.
Check for a Climate Change Agreement. If you are in an energy intensive sector, ask your trade body whether a scheme exists and what targets you would need to meet.
Compare on the full bill. When you get quotes, make sure they include the levy and VAT so you are comparing like for like, not a headline rate against a full one.
No. The levy is a separate per kWh tax on the energy you use. VAT is then charged on the whole bill, including the levy, so they are two different taxes stacked on top of each other.
Only if you genuinely qualify for an exemption, such as very low usage treated as domestic or charity non business use, or for relief through a Climate Change Agreement. You cannot simply opt out.
The main rate is around 0.775 pence per kWh for electricity and gas from April 2025, rising to about 0.801 pence from April 2026. It is charged on every unit you use.
A voluntary agreement for energy intensive sectors to meet efficiency targets in return for a large discount on the levy, historically up to around 90 percent on electricity. Your trade body can tell you if your sector has one.
Yes. It applies to electricity, gas and solid fuels supplied to businesses, each at its own rate. Only domestic and qualifying low usage or charity supplies are outside it.