Climate Change Levy: changes to rates from 1 April 2028
Published 28 October 2026
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Who is likely to be affected
Business and public sector users of energy, utilities and suppliers of gas, electricity, solid fuels, and liquefied petroleum gas (LPG).
General description of the measure
The Climate Change Levy main rates for electricity and liquefied petroleum gas (LPG) will be frozen from April 2028, at the 2027 to 2028 levels. The main rates for gas and solid fuels for 2028 to 2029 will be uprated in line with Retail Prices Index (RPI). The reduced rates of Climate Change Levy under the climate change agreement scheme will remain at the same fixed percentages of the main rates.
Policy objective
The main rate of Climate Change Levy on electricity will be frozen from April 2028, helping to reduce electricity costs in real terms for businesses, and supporting electrification and decarbonisation. The main rate of Climate Change Levy on LPG will also be frozen, maintaining consistency between LPG and other portable fuels for commercial premises not connected to the gas grid.
The main rates of Climate Change Levy on gas and solid fuels will increase in line with RPI, maintaining the real-terms value of the levy and preserving the incentive for energy efficiency.
Background to the measure
The main rates of Climate Change Levy are payable on supplies of electricity, gas, LPG and solid fuels to businesses and public sector organisations. They are applied to relevant energy bills by gas and electricity utilities in a similar way to how VAT is applied to energy bills.
The climate change agreement scheme sits alongside Climate Change Levy. Energy intensive businesses are eligible to pay Climate Change Levy at reduced rates in return for meeting challenging targets to improve energy efficiency or reduce emissions. Businesses in the scheme claim the discount from their energy supplier who charges Climate Change Levy at a percentage of the main rate in their energy bill. The impact on those paying the reduced rates (expressed as a percentage of main rates) will adjust accordingly.
Budget 2024 announced that the rates of Climate Change Levy would increase in line with RPI on electricity, gas, and solid fuels from 1 April 2026. Similarly at Budget 2025 there was another RPI increase for Climate Change Levy rates from 1 April 2027, the climate change agreement discount rates remained unchanged.
Throughout this period, LPG rates were frozen to protect the competitiveness of LPG as a heating fuel relative to kerosene, which is subject to Fuel Duty but fully rebated when used for heating. The LPG rate continues to be frozen.
Detailed proposal
Operative date
The changes will come into force from 1 April 2028.
Current law
Climate Change Levy is provided for by the Finance Act (FA) 2000. The main rates are set out in paragraph 42(1) of Schedule 6 to the Act. Paragraph 42(1) (ba), (bb) and (c) provides for the reduced rates for climate change agreement participants. The table in the ‘Main rates’ section details these.
Paragraph 2 of Schedule 1 to the Climate Change Levy (General) Regulations 2001 (SI 2001/838) (‘the Regulations’) sets out the formula used by businesses in the climate change agreement scheme to calculate their Climate Change Levy relief entitlement.
Proposed revisions
As announced at Budget 2026, the government will introduce legislation in Finance Bill 2026-27 to amend the Climate Change Levy main rates on gas, and solid fuels in paragraph 42 of Schedule 6 to FA 2000.
The main and reduced rates from 1 April 2028 are as follows:
Main rates
| Taxable commodity | Rate from 1 April 2028 |
|---|---|
| Electricity | £0.00827 per kWh |
| Natural gas | £0.00851 per kWh |
| LPG | £0.02175 per kg |
| Any other taxable commodity (solid fuels) | £0.06659 per kg |
Reduced rates
| Taxable commodity | Percentage of main rate from 1 April 2028 |
|---|---|
| Electricity | 8% |
| Natural gas | 11% |
| LPG | 23% |
| Any other taxable commodity (solid fuels) | 11% |
Summary of impacts
Exchequer impact (£ million)
| 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 | 2031 to 2032 |
|---|---|---|---|---|---|
| — | — | -25 | -25 | -25 | -25 |
These figures are set out in Table 6.1 of Budget 2026 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2026.
Economic impact
The measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to impact on individuals as Climate Change Levy is not levied on the supply of energy to individuals and households.
This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure does not affect individuals, therefore it is not anticipated that there will be disproportionate impacts on any protected groups.
Administrative impact on business including civil society organisations
The measure is expected to have a negligible impact on administrative costs for businesses. One-off costs for suppliers will include familiarisation with the rate changes and updating systems to reflect the new rates. There are not expected to be any continuing administrative costs for either fuel users or suppliers. Real-terms electricity costs for businesses will reduce as a result of freezing the electricity rate of Climate Change Levy.
Customer experience is expected to remain broadly the same as it does not alter how those businesses will interact with HMRC.
The measure is not expected to have an impact on civil society organisations.
Operational impact (£ million) (HMRC or other)
HMRC’s processing systems are designed to accommodate tax rate changes. The measure will not increase HMRC processing or compliance costs.
Other impacts
Climate Change Levy is an energy tax which aims to increase energy efficiency. Maintaining in real terms this price signal for gas and solid fuel means there will be no impact on expected emissions relative to the baseline.
Monitoring and evaluation
Consideration will be given to monitoring this measure through information collected from Climate Change Levy receipts and relevant administrative data.
Further advice
If you have any questions about this change, contact David Brayshaw by telephone on 0300 051 4476 or by email at energy.taxes@hmrc.gov.uk.