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Business Energy & Climate Change Levy (CCL)

Business Energy

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Does the Climate Change Levy apply to business energy? What exactly does it do? Where will the money go?

These are perhaps some underlying questions that many business owners find themselves asking.

Firstly, the Climate Change Levy (CCL) was introduced in April 2001. It’s an environmental energy tax that applies to business energy consumers.

Also, keep in mind that it’s different from Value-added tax (VAT). You can find it as a separate item in your business energy bills.

The CCL encourages a more environmentally-responsible UK. This will combat climate change by reducing carbon and emissions. In addition, CCL will also boost energy efficiency. To this end suppliers charge the levy on a per kWh basis.

However, businesses in industrial, public service, agricultural, and commercial sectors must pay CCL.

There are 2 types of rates: the Main Rate or Carbon Price Support (CPS) Rate.

Main rates

Business energy consumers in all the sectors we’ve mentioned above will pay this rate.

You may find the main rates on your business energy bill.

Consumers pay their CCL at the main rate on gas, electricity, and solid fuels (such as coal, coke, lignite, and petroleum coke).

Charities that are perform non-commercial activities, non-profit organisations, domestic consumers, and businesses that use less than at least 1,000kWh on electricity or 4,397kWh on gas are exempted from CCL.

Carbon price support rates

Businesses that generate their own energy pay this type of rate.

This type of rate specifically aims to encourage firms to use low carbon technology for energy production.

Climate Change Levy (CCL) Rates

Suppliers must charge the CCL ONLY on every unit per kwH (for both gas and electricity). That means that it does not apply on standard charges and other components found on your business energy bill. 

It’s important to note that there are separate CCL rates for both electricity and gas.

Also, the levy rises in line with the annual inflation (since April 1, 2007 as per the UK government). 

The table below reveals the latest CCL rates per kilowatt-hour on electricity and natural gas in the UK.

Business Energy

Is it possible to pay a reduced rate on Climate Change Levy for Business Energy?

Yes, it’s possible. In fact, you may be able to reduce your CCL by up to 90-93% on electricity and at least 65-75% on fuels. 

Energy-intensive businesses are eligible to enter a Climate Change Agreement (CCA) with the Environment Agency.

This agreement aims to reduce energy consumption and carbon dioxide emissions to ensure a safer environment.

Climate Change Agreement? What’s that?

Energy-intensive businesses are able to benefit from Climate Change Agreements (CCAs). It allows them to reduce the cost of the Climate Change Levy (CCL) on their energy bills. 

Energy-intensive businesses & the environment agency hold Climate Change Agreements. They do this as a means to reduce carbon dioxide emissions and minimise energy consumption.

How do Climate Change Agreements work?

According to the UK Government, energy usage and carbon emissions that go against targets over 4, 2-year target periods will be measured and reported by an operator that has a Climate Change Agreement. 

Businesses that have more than one eligible facility or organisation in the same sector have the option to group them all together under one Climate Change Agreement with a shared target across their available facilities, or hold a CCA for each individual facility. 

A target unit is a group of facilities that holds a CCA.

If a business successfully meets its targets during the reporting period, a reduced rate certificate will be provided with a list of facilities entitled to claim a discount on the CCL. This certificate is updated on the last working day of each month. 

How do I know if the Climate Change Levy applies to my business energy?

If your business is in the industrial, public service, agricultural, or commercial sector, then you are eligible to join the CCL scheme. 

For more information, check the list below:

Business/non-domestic energy consumers

Businesses and non-domestic energy consumers will be charged:

  • VAT
  • CCL
  • VAT on CCL

Businesses/non-domestic energy consumers classified as ‘low’

Businesses with low-usage will be excluded from the Climate Change Levy. On top of that, they will also be qualified for a VAT discount. 

Domestic/charitable non-business use

Registered charities (non-business) with a charitable status that is recognized by HMRC will be excluded from the Climate Change Levy as well as qualified for a VAT discount or reduction. 

Mixed use

For businesses or organisations that partake with a mix of activities, it is important to take note that some of these MIGHT meet the government’s domestic/charitable non-business criteria, and some may not.

It’s crucial to estimate your energy usage and split them between your usage that are 1.) qualified for exemptions and 2.) not qualified for any exemptions whatsoever. 

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