Measure

Climate change levy – rebalancing the main rates

The measure

Climate change levy (CCL) is charged on energy supplied by utilities (and some others) to non-domestic consumers. Historically, the rate of CCL has varied according to the type of fuel, with higher rates applying to fuels with a higher carbon content. 

In setting the CCL main rates for 2020/21 and 2021/22 the government will begin to converge the rates for gas and electricity. The CCL rate on gas will be raised so that it reaches 60% of the electricity main rate by 2021/22, whilst the electricity rate will be lowered in 2020/21 and 2021/22.

Intensive energy sectors with climate change agreements (CCA) with the government, are entitled to a reduction in the rate of CCL they incur on energy used in specific facilities, in return for meeting agreed energy targets. The level of CCL reduction available to CCA members from 2020 will be adjusted to recognise the revised CCL rates.

Who will be affected?

Energy suppliers typically pass on their liability to account for and pay CCL by adding CCL on top of their charges for energy products. The announced changes in CCL rates will mean that suppliers will be required to account for slightly less CCL on relevant supplies of electricity, and more on relevant supplies of gas. It seems likely that, depending on the contractual terms in place, suppliers will reflect these changes in CCL liabilities in their charges to customers.

Sectors operating CCAs will need to examine how their agreements will address these changes. 

When will the measure come into effect?

The change of CCL rates announced by this measure will take place over two years: 2020/21 and 2021/22. CCL rates will be unaltered until 2020 and there have been no announcements about the prospect of further CCL rate alignment after 2022. 

Our view

The government could have sought to bring CCL rates for gas and electricity closer together by raising the CCL rate for gas to the higher rate currently applied to electricity. Doing so would have generated a sizeable increase in tax revenue and may have provided considerable encouragement for industry to further reduce energy consumption. However, the less dramatic measures announced on 29 October 2018 will serve to better equalise the CCL impact on competitive fuel sources while creating a less aggressive increase in fuel costs.