In this guide, our Business Energy Comparison experts are going to take a look at everything you need to know about the Climate Change Levy. This includes its history, the rates that you’ll pay, the exemptions, and ways to make your business more energy efficient.
What Is The Climate Change Levy?
If you run a business then you’ll most likely have heard of the Climate Change Levy and might be aware it is an environmental tax. It’s one of a number of these kinds of taxes and reliefs aimed at reducing emissions in the UK.
Whilst most businesses in the UK are liable for this levy there are a number of exemptions. Working out if you’re exempt from the levy can at times be confusing. However, failing to pay it when you are eligible can result in large penalties.
An Overview Of The Climate Change Levy (CCL)
The Climate Change Levy (CCL) is an environmental tax that first came into effect in April 2001. It’s designed to encourage businesses to reduce energy wastage and carbon emissions. These are businesses in the commercial, industrial, agricultural, and public services sectors.
The Climate Change Levy isn’t charged on oils such as road fuel that are subject to excise duty. Instead, it’s charged on taxable commodities. These include petroleum, electricity, coal, and natural gas used for lighting, heating, and other purposes.
The UK’s Climate Goals
The Climate Change Act (CCA) was adopted in 2008. This outlined the UK government’s aims to reduce greenhouse gas and carbon dioxide emissions. By the time the Climate Change Act was adopted the CCL had already been in force for 7 years.
Both the CCA and the CCL are important parts of the government’s strategy to reach net-zero greenhouse gas emissions by 2050.
In 2019, the Carbon Reduction Commitment Energy Efficiency Scheme was abolished. This led to an increase in the business energy rates that were payable under the Climate Change Levy.
The History Of The Climate Change Levy
The roots of the Climate Change Levy can be traced back to the United Nations Kyoto Conference in 1997. As a result of this conference, the EU became committed to reducing emissions by 8% based on the levels in 1990.
These reductions were to be achieved within the Kyoto Protocol’s first period, 2008-2012.
The UK’s reduction target was even more ambitious at 12.5%. The UK government also set its own aim to reduce emissions by 20% by 2010.
This meant that the UK government would need to bring in new measures to achieve these targets. Before the conference, the government had been using the fuel duty escalator which taxed diesel and gas.
The government also attempted to raise VAT on domestic energy bills but this was unpopular. Due to high fuel prices, they also had to freeze the fuel duty escalator in 2000 and it came to an end in 2011.
The government needed a way to raise energy prices that protected households against the impact of these increases. This was to avoid an increase in fuel poverty.
They needed to find ways to discourage the use of energy through price increases. Any new taxes needed to:
- Avoid taxes on transport.
- Avoid fuel poverty and be fair to individual householders.
- Encourage industry support by being revenue-neutral and profiting from the ‘double-dividend’ effect.
- Avoid a decrease in international competitiveness by providing energy-intensive industries with special provisions.
- Maintain consistency with other policy initiatives that were in development at the time.
These factors ultimately led to the creation of the Climate Change Levy in 2001.
What Are The Climate Change Levy Rates?
Below are the different CCL rates:
Main rate
The main rate is paid on gas, electricity, and solid fuel. It’s paid by businesses in the agricultural, commercial, industrial, and public services sectors.
The main rate for gas was 0.406p per kWh as of 1st April 2021. For electricity, it was 0.811p per kWh. The rate for gas increased to 0.465p per kWh on 1st April 2021. It reduced to 0.775p per kWh for electricity.
The rate for electricity decreased because it’s viewed as a greener source of energy. This is due to the fact that it can be generated from renewable sources like solar and wind.
A business’s CCL rates are automatically calculated by its energy supplier. It’s then collected and given to HM Revenues and Customs (HMRC).
Carbon price support rate
The carbon price support rate is paid by the owners of electricity generating stations. It’s also paid by the operators of combined heat and power stations. Businesses that are classed as small generators are unlikely to have to pay this levy.
To be classed as a small generator, a business must generate its own energy and earn funds using the Feed-in Tariff.
How Is The Climate Change Levy Charged?
Every business is required to register for the Climate Change Levy. Energy suppliers then calculate the levy and automatically add it to business energy bills. Businesses that fail to register or pay must pay a penalty of £250 for each individual ‘failure’.
Climate Change Levy Exemptions
There are a number of exemptions from the Climate Change Levy:
- Fuel used for domestic purposes.
- Fuel that’s used for certain modes of transport like ferries and trains.
- Fuel that’s used to produce electricity. CPS rates still apply to gas, LPG, and solid fuel.
- Energy that’s used for non-commercial use by registered charities.
- Businesses that have low rates of fuel consumption.
- Energy that’s used to produce taxable commodities and taxable energy sources.
- Fuel that’s used as a feedstock to manufacture other products.
- Energy that’s used for non-fuel processes. This includes processes such as primary aluminium smelting.
- Some processes in the metallurgical and mineralogical processes. These are defined through NACE codes by HMRC.
- Small electricity generators that supply some energy to an electricity utility. As long as this energy is used for onward supply to customers.
- Community heating schemes.
- Any taxable fuel that isn’t used in the UK.
- Fuel including LPG that’s resold for non-taxable use.
As of 31st July 2015, electricity supplied to the public sector or businesses from renewable sources is also included in the CCL.
Can Businesses Pay Reduced Rates On The Climate Change Levy (CCL)?
Businesses that aren’t exempt from the environmental tax can often still reduce their rates. To do this, businesses can make themselves more energy efficient and sign up to the Climate Change Agreement (CCA).
This can reduce the Climate Change Levy rate on electricity bills by up to 90%. It can also reduce the CCL rate on all other fuels by 65%.
To receive these reductions, a business must reduce its average energy consumption. It must also improve its business energy efficiency. When a business signs up for the CCA it must commit to becoming more energy efficient. It must have a plan to reduce energy wastage and average energy consumption.
The business must also agree to measure its own emissions and energy use. It must then report the results. These will then be measured against previously agreed targets. The CCA sets out a total of four two-year target periods for businesses.
To continue receiving the CCL discount, a business must meet its targets in each of these periods.
Compare Business Energy Rates Today
One of the best ways for your business to save money on energy bills is to compare suppliers. If you feel like your electricity bills are too high then you could reduce them by starting your business electricity comparison.
The same goes for gas. Compare business gas prices and you could find a better deal and bring down the cost of your bills. This will help you find the most affordable business energy supplier for you.
Make sure to visit Business Energy Comparison for the best energy prices.
What Are The Best Ways To Make My Business Energy Efficient?
There are many different ways that you can increase your business energy efficiency and reduce your bills.
Light sensors
By installing light sensors, you can reduce the amount of energy your business wastes by up to 30%. Sensors turn lights on and off as people enter and leave rooms.
New light bulbs
One of the easiest ways to reduce energy consumption is to fit new lightbulbs. LED lights use 75% less electricity than incandescent lights. They also produce very few carbon dioxide emissions.
Switch off equipment
Essential office technology such as photocopiers, printers, and laptops use a lot of electricity. By ensuring that this equipment is unplugged at night you can make your business more energy efficient.
Make sure you enable energy-saving features so that this equipment powers down automatically.
Install a smart meter
Installing a smart meter will highlight where most of your energy usage occurs. You can use this information to effectively reduce it.
Turn down the thermostat
If you turn the thermostat down by just one degree you can make your business more energy efficient. A temperature of 20 degrees is recommended for offices and 16 degrees for warehouses.
This can vary according to different circumstances but you should never just choose a temperature at random. If you’re unsure of the optimal temperature for your business then try consulting your staff.
Use insulation
Another easy way of making your business more energy efficient is to ensure the premises are properly insulated. Any pipes, boilers, and hot water tanks need to be fully insulated. You should also stop any draughts from occurring.
Investing in cavity wall insulation is also a great way of reducing wasted energy.
Final Thoughts
The Climate Change Levy (CCL) is an effective way to encourage businesses to be more energy efficient. It’s a necessary environmental tax that forms part of the government’s net-zero strategy.
Still, if you’re worried about the impact of the tax on your business there are many ways to pay less. As we’ve shown, there are many exemptions. You can also reduce the amount you pay by signing up for the Climate Change Agreement.
Remember, failure to register for or pay the Climate Change Levy will result in financial penalties. So, always be sure that you keep on top of it.
Business Energy Comparison
Corby Innovation Hub,
Bangrave Road
Corby, NN17 1NN
0800 007 4001
Trading name of Utility Bidder
Should I fix my energy prices until 2023?
Business Energy Comparison
SHOULD I FIX MY ENERGY PRICES UNTIL 2023?
The latest Cornwall Insight forecast, based on Ofgem’s new methodology, is an 81% price cap rise in October 2022, causing a typical energy bill to £3,582 a year and a further 19% in January 2023 to £4,266 a year!
The 2022 April price cap increase for the average household was £1,971 and the predictions for October 2022 are to be significantly more than £3,000. These predictions may fluctuate but are close to correct previously.
Energy prices continue to soar at unprecedented rates, we recommend you fix your energy until 2023 with a fixed energy tariff which is cheaper than the October price cap.
Due to the energy crisis, energy prices constantly fluctuate, making it difficult for customers to secure a cheaper deal, but we recommend you secure these deals whilst they are available. Check out our business insights page to discover more about the latest energy market news.
We understand that fixing your electricity bill does mean that you may be paying slightly more than the price cap now but after the next price cap increase, you will be paying cheaper energy rates.
Within this guide, we will detail why energy prices are rising and what your options are.
Business gas prices have recently hit unprecedented levels. This rate hike has been caused by the volatility of the wholesale gas market. Prices reached an all-time high in December 2021. This has continued into 2022 and is expected to carry on through until 2023.
Depleted gas reserves because of bad winters and increased usage during the pandemic, coupled with the ongoing conflict in Ukraine have had and will continue to have a significant impact on pricing.
Why are UK energy prices so high?
Wholesale prices have skyrocketed since autumn 2021 due to multiple factors such as geopolitical factors, supply issues, COVID restrictions and the Russian invasion of Ukraine to name a few.
The UK has been hugely affected by rising energy costs due to our high gas and electricity usage and lower storage than some other nations.
The invasion of Ukraine has caused Europe to realise how reliant they are on Russian energy and has also been a major factor in energy price hikes. Furthermore, this has also affected wholesale gas prices as Russia previously supplied 40% of Europe’s gas. Over the last few months, we have seen that Gazprom has been reducing gas supplies via the Nord Stream pipeline, which accounts for more than a third of Russian natural gas exports to the European Union.
We are seeing prices triple compared to what businesses would have paid a couple of years ago and trends suggest there is no end in sight to the cost of wholesale prices.
How has this affected the energy price cap?
In April and October each year the energy regulator, Ofgem reviews the energy price cap, which limits the amount energy suppliers can charge for gas and electricity. Although the energy price cap is for domestic customers this has a huge effect on business customers too.
The purpose of the energy price cap is to protect customers on default standard variable tariffs from unprecedented price rises. Although the price cap is not the maximum a household can be charged, it is completely dependent on your energy usage.
In April 2022, the price cap was reviewed after a turbulent start to the year. The price cap was at £693 and was increased to £1,971 for an average household. The current price cap will be reviewed again in October 2022, and it is forecasted to rise by 81% to £3,582.
Does the price cap apply to businesses?
Unfortunately, the current price cap only protects domestic customers and there is currently no price cap for business customers.
To combat the huge increases in energy costs. some energy companies are passing on the costs to business gas and electricity prices. Continue reading to find out how you can reduce your business energy tariffs.
How does the energy price cap affect my business?
The energy price cap places a limit on the amount energy suppliers can charge domestic customers on default tariffs. The price per kWh and standing charges are included within the cap.
Your supplier will charge you accurately based on your gas and electricity usage so the more energy you use, the more expensive your electricity bill will be.
The price cap doesn’t apply to you if:
- You are already signed up for a fixed energy tariff
- You are signed up to your supplier’s standard variable tariff
The latest news suggested that Ofgem may consider reviewing the price cap every 3 months rather than every 6 months, we will provide our customers with an update on this once further information has been released.
What is predicted to happen to UK energy prices in 2023?
Energy costs have spiked continuously throughout the year reaching record-breaking highs. What we do know is that energy prices are going to continue to stay high and this is likely to be the case during 2023, therefore we recommend you fix your energy prices until 2023.
Energy prices are expected to peak in 2023 so prices may decrease slightly during the year, but these soaring prices are still going to be considerably increased compared to the prices businesses would have paid a few years ago.
ADVANTAGES OF FIXING YOUR ENERGY PRICES UNTIL 2023
Should I fix my energy prices? Fixing your energy rates until 2023 supplies stability and price certainty to businesses as it protects against future price hikes. Knowing that you will be paying the same unit rate will supply peace of mind during these turbulent times.
We recommend that customers look at their fixed rate tariff and compare this to the October price cap increase. The increase in October 2022 is expected to rise to £3,400 a year so if your fixed deal is around 40-45% more expensive than your current deal you may fall under this.
DISADVANTAGES OF FIXING YOUR ENERGY PRICES UNTIL 2023
Energy providers are having to protect themselves by increasing the rates on fixed-price deals. Agreeing to a fixed rate tariff for your domestic energy could end up with you paying more than you need to. Cheap fixed tariffs are disappearing quickly, and your energy supplier will only allow a small number of customers to sign up for these tariffs.
The best way to find these cheaper deals is to compare the market. Let Business energy comparison do the challenging work for you, we can compare energy deals from the UK’s leading energy suppliers to find the best deal for you.
What are the several types of gas and electricity tariffs?
Fixed tariffs are not the only type of tariff on the market. There are a variety of different contract types available including:
01 Fixed tariff
Your rate will not change throughout the entirety of your contract whilst on a fixed energy tariff.
02 Variable tariff
Your rate may fluctuate whilst on a variable contract depending on the market conditions at the time.
03 Price capped tariff
Your rate and standing charge can decrease but not increase on a price capped tariff.
Can you save money by fixing your energy prices?
The answer to whether you can save money by fixing your energy prices depends entirely on the market conditions at the time.
Fixed energy contracts are known to be one of the cheapest tariffs on the market. If energy prices begin to drop, it may be possible to find a cheaper variable contract, but we don’t believe prices will drop anytime soon. It is important to remember, that if you are on a variable tariff and prices increase, your energy supplier will charge you a higher price as your unit rate is not fixed.
What should I do if my fixed energy tariff is due to expire – Should I fix my energy prices again?
If you are currently locked into a fixed tariff, you are in the best position now. Once your fixed energy tariffs expired, your current energy supplier will place you on a variable tariff which is known to be expensive.
When your energy tariffs expire, this is your time to search the energy market for a better deal. We can help your business compare prices from the UK's leading energy suppliers to help find you a fixed tariff.
What is the government doing to help with energy price rises?
If you are struggling to pay your energy bills, there is help available. The government has recently announced schemes and grants due to rising energy bills. These schemes include:
- Winter fuel payment
- Warm home discount
- Energy supplier grants
- Fuel vouchers
- One payment of £400 to your energy account
- Recieve £150 if you pay your council tax
How to reduce your business energy bills?
Reducing your electricity consumption is a fantastic way to reduce your energy bills and there are many straightforward ways in which you can do this. Do you know how much energy your business is using? Find out below how you can reduce your energy costs:
- Watch your thermostat settings
- Embrace natural daylight
- Consider your water usage
- Switch to LED bulbs
- If you’re not using it, unplug it!
- Shut windows during the day
- Use fans wisely
- Avoid peak energy times
- Check your air conditioning
- Replace your air filter
- Get an energy-efficient dehumidifier
- Switch energy provider
How to find the best business energy deal?
The best way to find the best energy deal is to compare the energy market and fix energy prices as soon as you can. This will protect you against any further price rises as we are all unsure what will happen to energy prices in the next few years. Due to the current energy crisis, we recommend you fix your energy prices until 2023. Contact us today to speak to one of our energy experts, ready to answer your questions.
Frequently Asked Questions
How does business energy work?
Business energy is gas and electricity that are supplied to businesses. It functions similarly to domestic utility services. However, there are several key differences. The main difference is that business energy rates are usually less expensive that domestic energy rates.
This is because business energy tends to be sold in bulk instead of on a monthly basis.
Do business energy bills have caps?
There are no price caps on business energy bills. However, from October 2022 business owners will be given financial support via the Energy Bill Relief Scheme. Fixed contracts that were signed on or before December 1st 2021 will also be covered by this scheme.
What will happen if my business energy supplier goes bust?
If your energy supplier goes bust your business will still be supplied with electricity and gas. In due course, you’ll be informed of who your new supplier is by Ofgem. Ofgem is the UK’s gas and electricity regulator. You’ll usually find out within a few days of your supplier going bust.
Do business energy suppliers offer cooling-off periods?
A cooling-off period is a certain number of days in which you’re allowed to cancel your energy supply contract. The majority of business energy suppliers don’t offer cooling-off periods when you sign a contract.
This means it’s very important that you’re happy with the terms and conditions of the contract before you sign it. You’ll then be less likely to want to cancel it after it’s been agreed upon.
Business Energy Comparison
Corby Innovation Hub,
Bangrave Road
Corby, NN17 1NN
0800 007 4001
Trading name of Utility Bidder