Policy paper

Exemptions from Climate Change Levy for sodium bicarbonate produced from soda ash and electrolytic hydrogen

Published 12 January 2026

Who is likely to be affected

A small number of hydrogen producers and one sodium bicarbonate producer.

General description of the measure

As announced at Budget 2025, electricity used in electrolysis to produce hydrogen and natural gas used as a source of carbon dioxide to produce sodium bicarbonate from soda ash will be exempt from the Climate Change Levy (CCL).

Policy objective

When made using low-carbon methods, hydrogen has the potential to help the government meet its clean power goal for 2030 and its net zero target for 2050. One way to produce low-carbon hydrogen is by splitting water through electrolysis. Currently, the electricity used for this process is charged with CCL, even though it is not used as fuel. This makes electrolysis less competitive compared to steam reformation, where the use of natural gas is already exempt from CCL because it is not used as fuel.

Natural gas as a source of carbon dioxide to make sodium bicarbonate from soda ash is also charged with CCL, even though it is partly used other than as fuel for this process.

The government plans to remove CCL charges on these uses of electricity and natural gas to protect investment in these processes, and to support growth in the low-carbon hydrogen and chemicals sectors. This will also ensure that the non-fuel use exemption remains up to date with the changing energy landscape, and that there is a level playing field for all taxable commodities that are not used as fuel.

Background to the measure

Electricity used for hydrogen production through electrolysis was not exempt from CCL when the tax was introduced over 25 years ago. However, recent discussions with projects under the government’s first and second Hydrogen Allocation Rounds (HAR) have highlighted this issue. Using natural gas as a source of carbon dioxide to make sodium bicarbonate from soda ash is a new process that did not exist when CCL was introduced in Finance Act 2000 or last updated.

In the Spring Statement 2025, the government committed to the removal of CCL charges on electricity used for hydrogen production via electrolysis and launched a consultation to decide how best to do this. The consultation closed on 7 May 2025. There were 49 responses and 41% of those were from hydrogen producers. During the consultation, stakeholders also provided views on other processes they felt should be added to the non-fuel use exemption. Using carbon dioxide from natural gas to produce sodium bicarbonate was a process proposed, that government has found to be eligible for the non-fuel use exemption as a ‘mixed use’.

Detailed proposal

Operative date

Subject to approval by the House of Commons, the measure is anticipated to come into force in Spring 2026.

Current law

Paragraph 18(1) of schedule 6 to the Finance Act 2000 exempts the supply of taxable commodities that are not used as fuel from CCL. Paragraph 18(2) provides that regulations may specify when the use of a taxable commodity should or should not be treated as a fuel use, which includes under paragraph 18(3), taxable commodities with mixed uses.

Regulation 3 of the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005 provides that taxable commodities used in a way that is specified in schedule 1 are to be treated as non-fuel uses and any other use is a fuel use.

Proposed revisions

This measure amends the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005 so that electricity used for electrolysis to produce hydrogen, and natural gas used as a source of carbon dioxide to produce sodium bicarbonate from soda ash, are treated as non-fuel uses. As a result, their supply for these purposes will be exempt from CCL under paragraph 18(1) of schedule 6 to the Finance Act 2000.

Summary of impacts

Exchequer impact (£ million)

	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
Electricity used for electrolysis to produce hydrogen	—	nil	nil	nil	nil	nil
Natural gas used as a source of carbon dioxide to produce sodium bicarbonate from soda ash	—	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is not expected to impact individuals as it only affects businesses.

Equalities impacts

This measure only affects businesses, therefore it is not anticipated that there will be disproportionate impacts on those in groups sharing protected characteristics.

Administrative impact on business including civil society organisations

While this measure will support projects that carry out the production processes concerned, the administration impact on such businesses is expected to be negligible. This change removes CCL from electricity used in electrolysis to produce hydrogen and natural gas used as a source of carbon dioxide to produce sodium bicarbonate from soda ash. One-off costs could include familiarisation with this change. Continuing costs could include having to provide more information to HMRC as affected businesses will be required to complete forms to claim the non-fuel use exemption. There is not expected to be any further one-off or continuing costs.

Customer experience could be affected for those businesses as this does change the process for those businesses, but it now removes the CCL from those uses of electricity and natural gas.

This is not expected to impact civil society organisations.

Operational impact (£ million) (HMRC or other)

It is not anticipated that implementing this change will incur any additional costs or savings for HMRC.

Other impacts

Removing CCL costs from electricity used in electrolysis to produce hydrogen will help support the growth of the low carbon hydrogen sector. Low carbon hydrogen has the potential to support lowering emissions and delivery of net zero in various ways, for example by replacing high carbon fuels used by industries with high-temperature processes and heavier transport modes.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, contact Ange Colquitt — Energy Taxes by:

• telephone: 03000 587862
• email: angela.colquitt@hmrc.gov.uk

Declaration

Dan Tomlinson MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.