What Is the Climate Change Levy?

The Climate Change Levy (CCL) is a government-imposed tax designed to encourage energy efficiency and reduce carbon emissions across UK businesses. If you run a company that consumes electricity or gas, you’ve likely seen it appear on your bill, but what exactly is it, and how can you reduce your liability?

In this guide, we break down everything you need to know about the Climate Change Levy, from who pays it to how it’s calculated, and most importantly, how your business can minimise its impact while staying compliant.

Whether you’re an SME owner or part of a large enterprise’s operations team, understanding this charge gives you better control of your energy strategy and financial planning.

History and Evolution of the Climate Change Levy 

The CCL was introduced in April 2001 under the Finance Act 2000 as part of the UK’s strategy to meet its commitments under the Kyoto Protocol.

Initially, it applied to both conventional and renewable energy, but a major change came in 2015, when the government removed the exemption for renewable energy sources purchased with REGO certificates.

The rates have since been adjusted annually, and the levy remains an essential tool in the government’s effort to reduce carbon emissions and encourage energy efficiency among commercial energy users.

What Is the Climate Change Levy? 

The Climate Change Levy (CCL) is a tax applied to non-domestic electricity, gas, and solid fuel use in the UK. It was introduced to discourage excessive energy consumption and reduce the environmental impact of business operations.

It’s not a percentage-based tax like VAT; it’s charged at a flat rate per unit of energy consumed.

Key Features of the CCL 

• Applies only to non-domestic energy users
• Charged per kilowatt-hour (kWh) or per kilogram
• Revenues are used to support low-carbon initiatives
• Some exemptions and discounts are available

How Is the Climate Change Levy Calculated? 

The Climate Change Levy is calculated based on the total number of energy units, such as kilowatt-hours (kWh) for electricity or cubic meters for gas, your business consumes. Your energy supplier is responsible for applying the correct CCL rate, calculating the charge, and collecting it on behalf of HM Revenue & Customs. You’ll typically see this levy clearly itemised as a separate line on your energy invoice, alongside other charges like unit rates, standing charges, and VAT.

2025 CCL Rates 

Who Pays the Climate Change Levy? 

The levy applies to the majority of commercial, industrial, and public sector organisations across the UK that consume taxable fuels such as electricity, natural gas, and other non-renewable sources for essential operations like heating, lighting, and powering equipment. Regardless of the size of the business, if the energy usage is non-domestic and not exempt, the Climate Change Levy is likely to be applied.

Examples of Liable Entities 

• Factories, warehouses, and manufacturing plants
• Retail stores and restaurants
• Office buildings and coworking spaces
• Public institutions like schools and hospitals

CCL vs Other Green Taxes 

Many businesses often confuse the Climate Change Levy with other environmental taxes and green-related charges that appear on their energy bills. While these schemes may seem similar, they each serve different purposes and apply to different types of energy use or emissions. Here’s a breakdown to help clarify how they differ:

The CCL is focused on how much energy you use, while ETS and CPS target emissions at the source.

How Can Businesses Reduce the CCL? 

1. Climate Change Agreements (CCAs) 

Businesses in energy-intensive sectors can sign CCAs with the Environment Agency. In return for meeting agreed energy efficiency targets, they receive:

• Up to 90% discount on electricity CCL
• Up to 65% discount on gas CCL

2. Renewable Energy Use 

If your energy supplier offers electricity that is backed by Renewable Energy Guarantees of Origin (REGO) certificates, your business may qualify for an exemption from paying the Climate Change Levy on that portion of supply. However, eligibility isn't automatic; you must ensure that your contract explicitly includes REGO-certified energy and that your supplier provides the appropriate documentation. Always review the terms of your agreement and request proof of certification to confirm your exemption status.

3. Energy Efficiency Improvements 

Reduce your bill and your carbon footprint:

• LED lighting upgrades
• Energy-efficient machinery
• Real-time usage monitoring with smart meters, which can be impacted by regulations such as Ofgem Regulation PF272.

CCAs: Sector-Specific Examples 

Climate Change Agreements (CCAs) can lead to substantial savings on your energy bills, particularly by reducing your CCL liability. These agreements are especially beneficial for businesses in energy-intensive industries, where consumption is high and even small reductions can result in significant cost savings over time. CCAs are most valuable for sectors such as:

Food & Drink Manufacturing 

A beverage bottling facility signed a CCA and reduced its levy by £9,500 per year, thanks to machinery upgrades and process changes.

Metal Fabrication 

A metal workshop implemented heat-recovery systems and used real-time data to slash CCL charges by 70%.

Real-World Impact: Why the CCL Matters 

Example: Office SME

• Electricity usage: 150,000 kWh
• CCL cost: £1,162.50 annually

Example: Manufacturer on CCA

• Electricity usage: 300,000 kWh
• Regular CCL: £2,325
• CCA Discount: Pays only £232.50

These figures highlight how a proper strategy can lead to serious savings.

How to Check If You’re Overpaying on CCL 

Not sure if the Climate Change Levy charges on your energy bill are accurate? It’s important to double-check, as errors or missed exemptions could be costing your business money. Here’s how to verify whether your CCL charges are correct:

Step-by-Step Check 

• Review your energy bill: Look for the "CCL" line
• Check your contract: Are you on a green tariff with REGO?
• Confirm exemptions: Charitable or residential status?
• Ask your supplier: Are you paying the right rate?

Many UK businesses unknowingly pay too much on CCL due to outdated contracts or misclassification.

How Is the Levy Collected and Displayed? 

The Climate Change Levy is automatically collected by your energy supplier and passed on to HM Revenue & Customs, meaning it doesn’t require any additional reporting or administrative action from your business. This makes compliance straightforward, as the levy is simply included in your regular energy billing cycle.

How it appears on bills:

• “Climate Change Levy” or “CCL”
• Displayed in pence/kWh or £/month
• Listed separately from VAT and standing charges

Common Misconceptions About the CCL 

• “Only big companies pay it” – Even a small office pays CCL unless exempt.
• “It’s a carbon tax” – No, it's a tax on energy consumption, not emissions directly.
• “Nothing can reduce it” – CCAs, renewables, and usage cuts absolutely can.

Future of the Climate Change Levy 

As the UK accelerates its efforts to meet the Net Zero by 2050 target, the role of the Climate Change Levy is expected to evolve. The government may revise the CCL framework to better align with stricter environmental goals and carbon reduction targets. Possible developments include:

• Increases in CCL rates over time to further discourage high energy consumption
• Expansion of the levy’s scope to include additional fuels or emerging forms of energy use
• Replacement or integration with more advanced carbon pricing mechanisms, such as economy-wide emissions trading or carbon taxes

For businesses, this means that energy planning should go beyond today’s costs. Adopting sustainable practices now isn’t just about savings; it’s a strategic move to ensure resilience, regulatory compliance, and competitiveness in a low-carbon economy.

CCL for Multi-Site and Franchise Businesses 

Larger organisations with multiple sites, such as retail chains, hospitality groups, or logistics networks, face additional complexity when managing Climate Change Levy charges across their operations.

What to Consider:

• CCL is applied at the meter or site level, meaning each individual location is billed separately, regardless of group ownership.
• Centralised energy procurement can offer better rates and improve visibility across sites, making it easier to track and reduce CCL costs collectively.
• Franchisees operate under separate legal entities, so they are responsible for negotiating their own energy contracts and understanding their specific CCL obligations.

Implementing a coordinated, group-level energy strategy can help multi-site businesses not only cut costs but also improve environmental reporting, simplify compliance, and identify opportunities for energy efficiency improvements across the board.

Conclusion: Why It Pays to Understand the Climate Change Levy 

The Climate Change Levy is more than just a minor charge on your energy bill; it represents a meaningful opportunity to take control of your business’s energy use, cost efficiency, and environmental responsibility. By gaining a clear understanding of how the levy works, identifying ways to reduce your exposure through smarter contracts or exemptions, and staying informed about regulatory changes, your business can gain both financial and strategic advantages.

With energy costs continuing to rise and sustainability becoming a competitive priority, even small actions like reviewing your CCL charges or switching to REGO-backed green tariffs can deliver long-term value. Now is the time to go beyond compliance and start treating energy planning as a vital business investment. Take charge of your energy costs and reduce your carbon footprint in the process.

Summary Points 

• CCL is a UK tax aimed at reducing business energy use and emissions.
• It applies to most non-domestic energy consumption.
• Discount schemes like CCAs can reduce costs by up to 90%.
• Renewables with REGO certificates can exempt your business.
• Reviewing your bills could uncover savings or mischarges.

Frequently Asked Questions 

Q1: Can small businesses be exempt from CCL?
A1: Only if they qualify as domestic premises, charities, or use REGO-backed renewables.

Q2: How do I apply for a Climate Change Agreement?
A2: Through the Environment Agency or your trade association, specific targets apply per sector.

Q3: Can I challenge incorrect CCL charges?
A3: Yes. Contact your energy supplier with evidence of exemption or contract terms.

Q4: Are green tariffs automatically exempt from CCL?
A4: No. Only if they’re certified with REGO documents and explicitly structured that way.

Q5: Is the CCL likely to increase in the future?
A5: Yes. Rates are reviewed annually and may rise to support climate targets.