Research and analysis

UK fossil fuel incentives and subsidies inventory

Published 23 April 2026

1. Introduction

The UK has long recognised that the economy will need to become less reliant on fossil fuels to achieve energy security, economic growth and net zero. The Climate Change Act in 2008 made the UK the first country to introduce a legally binding, long-term emissions reduction target.

The UK government has put clean energy at the heart of our agenda, as the best route to enhanced energy security, lower bills and good jobs for the country today. Making Britain a Clean Energy Superpower is 1 of the 5 missions of the UK government, delivering clean power by 2030 and accelerating the UK to net zero by 2050 across the economy.

The UK believes that inefficient fossil fuel subsidies encourage wasteful consumption, reduce energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change. 

The UK supports international efforts to reform inefficient fossil fuel subsidies and has been a longstanding supporter of multilateral efforts to promote fossil fuel subsidy reform since these were first proposed in 2009, including through the G7, G20, UNFCCC, and the Coalition of Finance Ministers for Climate Action. As part of this, the UK made commitments within the COP28 Global Stocktake to “Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible”

The UK has also made a legally binding commitment to take steps to eliminate harmful fossil fuel subsidies in the UK-New Zealand Free Trade Agreement which was agreed in 2022. The UK is also an active member of the Fossil Fuel Subsidy Reform Initiative at the World Trade Organization and considers this to be an important part of pushing for global fossil fuel subsidy reform and phasing out inefficient fossil fuel subsidies. 

The UK accepts that policy measures that impact the price of fossil fuels may be necessary during times of crisis. For example, Russia’s illegal invasion of Ukraine led to extremely high bills and a cost-of-living crisis which required the UK government to introduce crisis support measures such as the Energy Bills Discount Scheme support for Energy and Trade Intensive Industries. This intervention was time-limited and in response to specific, emergency events caused by a geopolitical crisis. The government recognises that families and business across the country will see the recent global events in the Middle East and once again be concerned about the impact on their energy bills. The government will continue to monitor the situation closely and look at what further support may be needed.

From April 2026/27 to 2028/29, 75% of the domestic costs of the Renewables Obligation will be moved to the exchequer. This principled reform shifts the balance from levies on bills to public spending. Over 3 years, £7 billion worth of historic RO levies will be funded through public expenditure, providing short-term relief and greater long-term benefits for consumers.

Oil and gas

The government recognises that North Sea oil and gas will continue to have a role in the UK’s energy mix for decades to come and is committed to managing the North Sea in a way that ensures a fair, orderly and prosperous transition. The UK’s tax policy reflects this.

The Energy Profits Levy (EPL) is a temporary levy, with the design incorporating a price floor, the Energy Security Investment Mechanism (ESIM), where if both average oil and gas prices fall below the ESIM thresholds for a period of 6 months, the EPL will end early. The EPL has raised around £12bn since its introduction to date. The levy is currently set at a rate of 38%, bringing the headline rate of tax on upstream oil and gas activities to 78%. 

When the EPL comes to an end, either on 31 March 2030 or earlier if the ESIM triggers, it will be replaced by the permanent Oil and Gas Price Mechanism (OGPM). The OGPM will operate in times of high prices and the mechanism will be a revenue-based tax. 

Coal

In September 2024, the UK became the first G7 economy to phase out coal power, a year earlier than the original 2025 target. Policy and economic conditions served as the key drivers of change for the UK’s coal phase out. The UK reduced coal’s share of its electricity supply from around a third in 2014, to zero in the space of only 10 years. According to the World Resources Institute, the UK has achieved the second-fastest coal power phase out in the world.

The science is clear: coal power remains the largest source of energy related CO2 emissions globally and needs to be phased out first and fastest to avoid the worst impacts of climate change. As the co-chair of the Powering Past Coal Alliance alongside Canada, the UK is playing a leading role in supporting the global coal to clean transition, sharing the lessons learned with others to advance a just, secure transition from coal to clean power.

International fossil fuel support

In March 2021, the UK adopted a government-wide policy to no longer provide any new direct financial or promotional support for the fossil fuel energy sector overseas, except in limited circumstances, prioritising its support for the clean energy transition. These exceptions are tightly defined and include support for energy access, clean cooking, and national security. This is a ‘whole of-government’ policy, covering export finance, Official Development Assistance, and the UK’s development finance institution, as well as wider diplomatic government support and voting position at the boards of Multilateral Development Banks. In its first full year operating a fossil-fuel-free export finance policy, UK Export Finance (UKEF) supported GBP 7.4 billion in exports, the second highest in 30 years, all of which is fossil-fuel-free.  

UKEF has since published its first Sustainability Strategy, which sets out how UKEF will position UK exporters at the head of the global low carbon transition, aiming to provide £10bn of clean growth finance by 2029, and create a positive impact in developing markets by aiming to mobilise an additional £10bn in finance in low- and middle-income countries by 2029.

The UK also launched the Clean Energy Transition Partnership (CETP) in 2021, during COP26. This is a UK-chaired ambitious and diverse multilateral alliance of governments, their official export credit agencies, public finance institutions, and multilateral development banks. Norway and Australia have both since joined the Partnership and become full members with published fossil fuel finance exclusion policies. All CETP members have signed a joint statement, committing to end international public support for the unabated fossil fuel energy sector within a year of becoming a signatory and prioritise support for the clean energy transition, recognising the various development and energy needs across different economies.  

The Coalition on Phasing out Fossil Fuel Incentives Including Subsidies (COFFIS)

UK membership of the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS) further demonstrates the UK’s continued engagement on fossil fuel subsidy reform and its commitment to enhanced transparency. Joining COFFIS presents an opportunity for the UK to engage constructively with the coalition’s other signatories.

The UK’s commitments within the COFFIS include:

1. Being transparent by publishing a national inventory on the UK’s fossil fuel related support, and contributing to international efforts to develop a ‘comprehensive methodological framework’ for defining a fossil fuel subsidy;
2. Identifying international barriers preventing the phase-out of fossil fuel subsidies, particularly in the maritime and international shipping industries, and;
3. Developing a national phase-out strategy for fossil fuel incentives and support measures within a clear timeline, by COP31.

The UK intends to take an evidence-based and balanced approach to delivering its COFFIS commitments and looks forward to exploring this topic further in discussions with other COFFIS signatories.

2. International fossil fuel subsidy approaches

There are several internationally recognised approaches to calculating a fossil fuel subsidy. The UK uses the International Energy Agency’s (IEA) ‘Price Gap’ approach which establishes a market reference price (based on international prices) that corresponds to the full cost of supply and compares it with the sales price. If this user price is lower than the market reference price, it is counted as a subsidy.^{[footnote 1]} There are other internationally used definitions for fossil fuel subsidies, including those used by the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO). However, alternative approaches can give rise to unintended consequences.  

Taking the example of rebated fuels like ‘red’ diesel where the UK has a reduced duty relative to ‘normal’ diesel. Alternative approaches would regard the reduced duty as a fossil fuel subsidy, even though a positive duty is paid on the red diesel. Furthermore, if the duty on normal diesel was reduced to the level of duty on red diesel (hence increasing the consumption of diesel and associated GHG emissions), then according to other approaches, the fossil fuel subsidy on red diesel would have disappeared, even though this would involve reducing the overall amount of taxation on fossil fuels. This illustrates why it is key to focus on government interventions which result in a lowering the price of fossil fuels below the price that the market would otherwise determine. This is the merit of the IEA approach.

3. Wider support measures

Table 1 – Policy Rationale and Description for Wider Support Measures

Measure	Policy Rationale	Policy Description
Energy Bills Discount Scheme support for Energy and Trade Intensive Industries (ETIIs)	Energy affordability/ social protection broadly applied to non-dom customers direct bill reduction	The Energy Bills Discount Scheme (EBDS) replaced the Energy Bill Relief Scheme on 1 April 2023, offering discounted unit rates on non-domestic gas and electricity contracts until 31 March 2024. This scheme provided a higher discount for Energy and Trade Intensive Industries (ETIIs) and Heat Networks (QHN), ensuring continued support for businesses facing higher energy costs. The EBDS ETII scheme is a scheme for additional support, primarily targeting non-domestic customer operating in energy intensive sectors. Support End Date: 31/03/2024 Closure Date: 31/03/2025
British Industry Supercharger	Industry competitiveness/ carbon leakage	Electricity cost support for around 500 domestic businesses in 73 energy intensive industry sectors. The package consists of 3 measures which exempt from, or otherwise compensate, eligible businesses for specific electricity costs to bring costs closer in line with those charged in competitor countries to reduce the risk of carbon leakage and lower barriers to electrification longer term.
Capacity Market	Maintaining electricity supply security.	The Capacity Market is the UK government’s main mechanism for ensuring security of electricity supply in Great Britain. The Capacity Market secures sufficient capacity by incentivising providers to be available and deliver electricity during periods of peak demand or system stress events. Capacity providers compete in auctions to obtain Capacity Market agreements that provide revenue streams which support investment in electricity capacity, which in turn ensures security of supply. These payments are not linked to the amount of electricity which participants generate. Participants, including low carbon technologies and fossil fuel generators, are paid in return for being available to generate or reduce demand if called upon by the system operator. Payments do not directly affect incentives for participants, including those using fossil fuels, to generate electricity as they do not remunerate generation itself. Through the Capacity Market, existing and new build capacity (including generation, storage, demand-side response, and interconnectors) compete in auctions to obtain Capacity Market agreements, under which they commit to deliver capacity (by turning up their generation or turning down their electricity demand) when needed in return for guaranteed regular payments to support investment. These payments are funded by electricity suppliers, through a supplier levy, who recover this cost from electricity consumers.
Energy Bills Support Scheme	Energy affordability/ social protection	The Energy Bills Support Scheme provided a £400 payment to GB households, distributed via consumers’ energy supplier through 6 monthly payments of £66 or £67 from October 2022 to March 2023. It formally ended in July 2023 (when the final prepayment meter (PPM) vouchers expired). Most households received the discount automatically but there were application routes for those who did not due to not holding a household specific account with a supplier, such as those living in park homes. Landlords were required to pass on energy bill support to tenants who have bills-inclusive rent or who pay their energy costs to the landlord. Support End Date: 31/03/2023 Closure Date: 17/07/2023
Energy Price Guarantee	Energy affordability/ social protection universally applied – discount to bills	The Energy Price Guarantee (EPG), introduced in October 2022, capped the unit price of electricity and gas to protect households from significant price increases. The scheme reimbursed suppliers for the difference between the capped rate and wholesale costs. To ensure fairness across payment methods, the EPG also removed the prepayment meter (PPM) premium from 1 July 2023 by applying a discount to PPM unit rates, aligning costs with those of direct debit. Initially, a discount was applied to gas unit rates only, as electricity PPM costs were already less than the equivalent for Direct Debit. From 1 October 2023 onwards there was a change in how the discount was delivered. Instead of discounted unit rates, PPM customers received a discount on standing charges. This made sure that PPM customers were covered by the EPG. This saving continued into the price cap period covering 1 January – 31 March 2024. Although the EPG scheme officially ended on 31 March 2024, it ceased providing discounts from 1 July 2023, as the Ofgem price cap fell below the EPG threshold (£2500) meaning energy prices were already lower than the guaranteed rate. Support End Date: 31/03/2024 Closure Date: 31/03/2025
Energy Bill Relief Scheme	Energy affordability/ social protection broadly applied to non-domestic customers direct bill reduction	The Energy Bill Relief Scheme helped businesses, charities, and public sector organizations manage rising energy costs by providing a discount on the wholesale price of electricity and gas from 1 October 2022, to 31 March 2023. This scheme automatically applied discounts to eligible non-domestic energy contracts, providing significant relief during a period of high energy prices following the Russian invasion of Ukraine. Support End Date: 31/03/2023 Closure Date: 31/03/2025
Energy Bill Discount Schemes	Energy affordability/ social protection broadly applied to non-dom customers direct bill reduction	The Energy Bills Discount Scheme (EBDS) replaced the Energy Bill Relief Scheme on 1 April 2023, offering discounted unit rates on non-domestic gas and electricity contracts until 31 March 2024. This scheme provided a higher discount for Energy and Trade Intensive Industries (ETIIs) and Heat Networks (QHN), ensuring continued support for businesses facing higher energy costs. Support End Date: 31/03/2024 Closure Date: 31/03/2025
Warm Home Discount	Fuel poverty	The Warm Home Discount is a key policy in the government’s approach to tackling fuel poverty and reducing the energy costs of low-income and vulnerable households in Great Britain. The scheme provides eligible low-income households across Great Britain with a £150 rebate off their winter energy bill and is funded through a levy on domestic gas and electricity customers. The funding is targeted at households in or at risk of fuel poverty There are 2 Warm Home Discount schemes – one in England and Wales, and one in Scotland. Across the two, low-income pensioners are eligible, which has been a feature of the scheme since it began in 2011. This comprises recipients of the Guarantee Credit element of Pension Credit (known as ‘Core Group 1’ in England and Wales and ‘Core Group’ in Scotland). In England and Wales, further low-income households are eligible under ‘Core Group 2’ which was introduced from winter 2022/23 onwards. Following the expansion of the scheme for winter 2025/26, the eligibility criteria has been expanded to include all households in receipt of a qualifying means-tested benefit. (Note that across all groups, the named benefit recipient or their partner/legal representative must be listed on the electricity bill as of the qualifying date to receive the rebate). In Scotland, customers apply to their energy supplier for a rebate under the ‘Broader Group’, which provides support to a wider range of low-income and vulnerable households. While WHD provides support for some consumers on their energy bills, the relationship with fossil fuels is indirect as: - It is levy funded; so, while there is a net benefit to recipients, for non-recipients this represents an extra cost on their energy bills. - The rebates are paid on electricity bills (since not all households will have a gas bill). - The WHD is effectively a reduction in the bills paid by  eligible households, rather than a reduction in the unit price of energy.  DESNZ analysis assumes around 50% of the WHD will be spent on additional heating (based on an evaluation of the Winter Fuel Payment), with the other 50% spent on other costs (e.g. food, rent, savings). In many cases this is likely avoiding the under-heating of homes. The cost figures for the WHD include an estimate for the 2025/26 rebate spend which is based on modelling as the 2025/26 scheme year has not yet closed. The modelling is within the government’s latest WHD Impact Assessment, published January 30, 2026.
UK Emissions Trading Scheme 1) Free Allocation 2) Hospital and Small Emitters Scheme 3) Ultra-small Emitters Scheme	1) Free Allocation: Carbon leakage mitigation 2) Hospital and Small Emitter: Proportional compliance burdens 3) Ultra-Small Emitter: Shielding ultra small emitters	The UK Emissions Trading Scheme (UK ETS) is the national cap-and-trade system for greenhouse gas emissions, covering large industrial installations and power generators above a 20MW thermal input threshold, as well as aviation operators on some UK departing flights (UK domestic, UK-EEA, UK-CH, UK to and from Gibraltar). Emissions are accounted for by surrendering sufficient ‘allowances’ to cover emissions in a given year with one allowance equalling one tonne of CO2e. Most are purchased, but some allowances are given to certain sectors for free to mitigate carbon leakage. This is known as ‘free allocation’ which is not a fossil fuel subsidy. This lowers the effective cost of emissions compliance relative to market prices. Hospitals and Small Emitters (HSE) and Ultra Small Emitters (USE) status provides for simplified compliance and administrative burdens for smaller businesses, protecting them from disproportionate costs. The 20MW threshold means that many smaller fossil fuel users are not in scope of the UK ETS. See table 3 below for an illustration of the value of free allocation under the UK ETS. 1. Free allocation (FA). Sectors most at risk of carbon leakage receive the most FA in order to mitigate the risk of carbon leakage. The effect of FAs is to reduce the effective cost of compliance for eligible operators - such that they do not need to purchase all of their allowances. The scale and eligibility for  FA is determined by carbon leakage risk (e.g. chemicals, steel) as well as sectoral efficiency benchmarks and historical activity levels. To note - the illustrative value cost of  FA can only reflect the average annual price of UK ETS allowances sold at auction  – as the UK ETS price fluctuates.  Illustrative values of FA assume that FA has  a price equivalent to the average auction price for the year of their allocation. These assumptions are made because the UK ETS price fluctuates whilst allowances have no expiry date and can be surrendered in any year within a trading period after they are issued. The value of FAs is not scored by the OBR. 2. Hospital and Small Emitter (HSE) Status offers eligible installations simplified compliance and MRV, providing a more proportionate admin burden and costs. Participants are set an emissions target for each year and must pay a carbon price for any emissions over this. The price is charged through a civil penalty set at a comparable carbon price rate for that year. 3. Ultra-Small Emitter (USE) status offers eligible installations (under 2,500t CO2e/year but still over the 20MW inclusion threshold) an even greater level of simplification of compliance and MRV than HSE status. Installations may be subject to penalties for any emissions over their maximum amount, which will be calculated based on the relevant carbon price but must notify their regulator if they exceed the threshold. Every 5 years they must apply for USE status for the next allocation period by submitting verified emissions reports.
Ring-fence oil and gas trade corporate income tax relief, first-year capital allowances for plant and machinery	Sector competitiveness and energy security	Capital expenditure on oil extraction activities is relieved under the appropriate capital allowances rules, and in most cases 100% first year allowance is due (this is now economy wide). The UK oil and gas fiscal regime taxes profits earned by companies from exploration and production activities related to oil and gas in the UK and on the UK Continental Shelf. Oil and gas taxes are kept separate from normal corporation tax by the ‘ring fence’, which prevents losses from non-oil and gas activities being used to reduce oil and gas liabilities. The available tax reliefs for oil and gas in the ‘ring fence’ recognise the capital intensive nature and long timescales associated with the production lifecycle of oil and gas projects, and the fact that the headline tax rate on oil and gas companies is higher than corporation tax on other UK companies due to the potentially significant amount of rent which can be derived from an indigenous resource. The reliefs are therefore designed to encourage successful investments and reduce the cash-flow impact of investments, which often take years before generating a payoff (or sometimes don’t produce any payoff at all, if the exploration prospect is unsuccessful).
Ring-fence oil and gas trades corporate income tax relief for decommissioning expenditure	Sector competitiveness, energy security, decommissioning	Companies are under a statutory obligation to decommission fields and assets at the end of their productive life. Full relief for decommissioning is provided (through capital allowances) against the permanent oil and gas taxes (but not in the Energy Profits Levy regime). At current rates this is 40% but can be up to 81% historically. Oil and gas taxes are kept separate from normal corporation tax by the ‘ring fence’, which prevents losses from non-oil and gas activities being used to reduce oil and gas liabilities. The available tax reliefs for oil and gas in the ‘ring fence’ recognise the capital intensive nature and long timescales associated with the production lifecycle of oil and gas projects, and the fact that the headline tax rate on oil and gas companies is higher than corporation tax on other UK companies due to the potentially significant amount of rent which can be derived from an indigenous resource. The reliefs are therefore designed to encourage successful investments and reduce the cash-flow impact of investments, which often take years before generating a payoff (or sometimes don’t produce any payoff at all, if the exploration prospect is unsuccessful)
Allowances against supplementary charge including: Investment Allowance, Cluster Area Allowance, and the Onshore allowance	Sector competitiveness, energy security, decommissioning	Investment Allowance against the Supplementary Charge (SC): SC is levied on top of RFCT on adjusted ring fence profits. It is calculated in the same way as RFCT, except finance costs must be added back in. SC has an 62.5% investment allowance worth 6.25p/£1 which has the policy rationale to make investing in the UK Continental Shelf more attractive by recognising costs and rewarding successful investment once it starts making profit. Cluster Area Allowance: The Cluster Area Allowance was introduced to help incentivise high pressure, high temperature oil and gas projects. The cluster area allowance works similarly to the investment allowance against supplementary charge, it reduces the company’s profits subject to the supplementary charge and has a 62/5% allowance. Onshore Allowance: The Onshore Allowance provides relief for certain capital expenditure for onshore oil-related activities, by reducing the amount of capital expenditure subject to the supplementary charge, by 75%. The onshore allowance replaced all existing field allowances for onshore projects.
Petroleum Revenue Tax relief for decommissioning expenditure	Sector competitiveness, energy security, decommissioning	Petroleum Revenue Tax (PRT) is a tax on fields that commenced before 1993. It was zero-rated in 2016 but retained to allow companies to claim relief for trading or decommissioning losses.
Exemption from Climate Change Levy for Supplies not for burning/consumption in UK	Industry competitiveness	The Climate Change Levy is a tax on the supply of energy to non-domestic users, introduced in 2001 to encourage energy efficiency. Exemption from Climate Change Levy for Supplies not for burning/consumption in UK: where energy types are supplied to an in-scope business but not consumed in the UK (i.e. exported) they are exempt from scope.
Climate Change Agreements scheme (Reduced rate for participants in Climate Change agreements)	Industry competitiveness and energy efficiency	Energy-intensive businesses that participate in the Climate Change Agreements scheme qualify for reduced rates of Climate Change Levy in return for meeting energy-efficiency or carbon reduction targets. The Climate Change Agreements scheme is in place to encourage companies to increase their energy efficiency, whilst helping ensure competitiveness. Reduced rates for energy intensive users. Covers energy intensive industries that have entered into a negotiated climate change agreement with the Environment Agency.
Exemptions from Climate Change Levy for supplies used in some metallurgical and mineralogical processes	Industry competitiveness and energy efficiency	Exemptions for supplies used in metallurgical and mineralogical processes: Energy used for minmet purposes (largely steelmaking) are exempt from paying the Climate Change Levy.
Exemptions from Climate Change Levy for supplies to Combined Heat/Power stations	Energy efficiency and decarbonisation	Exemptions for supplies to Combined Heat/Power stations: Where Combined Heat and Power stations are certified as good quality under the Combined Heat and Power Quality Assurance scheme, supplies of energy to these sites are exempted from paying Climate Change Levy. Combined Heat/Power provide environmental benefits
Exemptions from Climate Change Levy for energy supplies not used as fuel	Outside of purpose of the tax	Exemptions from Climate Change Levy for energy supplies not used as fuel: Where energy is not used as fuel (i.e. for energy purposes). For example, electricity used for electrolysis, or liquefied petroleum gas used as an aerosol propellant.
Exemption from Climate Change Levy for Supplies used in Some Forms of Transport	Industry competitiveness	Exemptions from Climate Change Levy for Supplies used in Some Forms of Transport: There are specific transport uses for energy which are not subject to Climate Change Levy, including to electrify train lines, power a ferry, or for a journey which is at any time outside of territorial waters. Only applies to vehicles which use electricity (UK grid is relatively clean).
Tied oils scheme (Industrial Relief Scheme)	Rebated fuels refer to fuels that are taxed at a lower rate than the main rates of fuel duty. This rebate is typically applied to fuels used for specific purposes where full duty would be considered disproportionate or where the government wants to support certain sectors.	Hydrocarbon oils duty – tied oils, industrial relief scheme: This relief applies to uses of light and heavy oils for industrial purposes, provided the oil in question is not used as fuel for any engine, motor or machinery or as heating fuel. The cost of the tied oils scheme in 2022-2023 was £270m and in 2023 - 24 it was £300m. Relief for oil used as solvents, lubricants etc, and in the production of products such as paints.
Red Diesel Entitlement	Rebated fuels refer to fuels that are taxed at a lower rate than the main rates of fuel duty. This rebate is typically applied to fuels used for specific purposes where full duty would be considered disproportionate or where the government wants to support certain sectors.	Use of gas oil as motor fuel other than in road vehicles is included in the scope of the partial rebate that also applies to heating use. A partial rebate applies to kerosene used as motor fuel other than in a road vehicle. This includes use in off-road vehicles, rail, inland waterways, transport refrigeration units, generating sets etc. Red Diesel Entitlement: Red diesel is used primarily in agriculture, fishing and other commercial voyages, railways and in domestic heat and power. In contrast to the full duty rate of 52.95p per litre, red diesel is taxed at the partially rebated rate of 10.18p per litre. Until 2022, all those using fuel other than in road vehicles were entitled to use red diesel. In April 2022, the government removed the entitlement from most users, more fairly reflecting the negative environmental impact of the emissions they produce, raising approximately £1.5bn p.a.
Fuel Duty, including: 1) Rebate of Duty on Aviation Turbine Fuel and Gasoline 2) Rural Fuel Duty Relief 3) Horticultural Producer’s relief 4) Marine Voyages Relief 5) Kerosene used as heating fuel 6) Lifeboats 7) Production of energy for refineries 8) Reduced rate for aqua methanol 9) Lighthouse	Rebated fuels refer to fuels that are taxed at a lower rate than the main rates of fuel duty. This rebate is typically applied to fuels used for specific purposes where full duty would be considered disproportionate or where the government wants to support certain sectors.	It is not possible to set out estimates of the cost of all the other fuel duty reliefs because the costs are not updated annually. The UK doesn’t have any costings for these fuel duty reliefs past 2019/20 1. Rebate of duty on Aviation Turbine Fuel (Avtur): Fully rebated Avtur can only be used as fuel for an aircraft engine, other than for private pleasure flying. The UK expects that the application of excise duty to fuel used in international flights would contravene the UK’s international obligations, particularly its air service agreements with other countries. The cost of this relief in 2017-2018 for domestic flights only was £360m. The UK does not have a formal costing of the relief for international flights, but it would likely be up to c. £8bn were standard rate (52.95 ppl) of full duty applied. Rebate of duty on Aviation Gasoline (Avgas): Avgas is used primarily by small aircraft, such as private pleasure flights. It is also used by some helicopters. Whereas petrol is taxed at 52.95p per litre, avgas incurs a duty of 36.29p per litre. This relief cost £5m in 2018-2019. 2. Rural fuel duty relief: Suppliers of petrol and diesel in certain areas (including Inner and Outer Hebrides, Northern Isles, Islands of the Clyde, Isles of Scilly, 4 postcode districts in England and thirteen postcode districts in Scotland) may reclaim 5p per litre in fuel duty. The areas included in the scheme demonstrate certain characteristics such as: pump prices much higher than the UK average, remoteness leading to high fuel transport costs from refinery to filling station, and relatively low sales meaning that retailers cannot benefit from bulk discounts. This relief cost £5m in 2020-2021. 3. Horticultural producers relief: Horticultural producers may reclaim fuel duty on oils used to heat any building or the earth or used to sterilise the earth or any other growing medium. This relief had negligible cost in 2018-2019. 4. Marine voyages relief: Users of light and heavy oils and biofuels can reclaim excise duty or obtain duty-free fuel for commercial marine voyages at sea. Such voyages on inland waterways do not benefit from the relief. This relief cost £420m in 2018-2019. 5. Kerosene used as a heating oil: Kerosene is fully rebated when used as a heating fuel and is used primarily by buildings that are off the gas grid. The cost of this relief in 2017-2018 was £2.4bn. 6. Lifeboats: The Royal National Lifeboats Institution benefits from a relief from fuel duty in lifeboats and launch equipment that it operates. At Budget 2023, the government extended the rebated fuels entitlement (see above) to allow all lifeboat charities to use red diesel in tractors and gear used to launch or recover their lifeboats. 7. Production of energy for refineries - Relief from excise duty on oil used in the production of oil and by doing so avoid double taxation on the finished oil product. 8. Reduced rate for Aqua Methanol: The reduced rate of duty on aqua methanol is intended to incentivise the uptake of this fuel as a cleaner alternative to diesel and petrol. The duty on aqua methanol is 7.22p per litre, in contrast to the duty rate of 52.95p per litre on petrol and diesel. The cost of this relief in 2018-2019 was negligible. 9. Lighthouses - Relief from Hydrocarbon Oil Duties on oil used by a general lighthouse authority, to support them due to their social benefit. Whilst Trinity House & Northern Lighthouse Board are registered with HMRC, the Mineral Oil Reliefs Centre (MORC) has not dealt with any claims for this relief.
5% VAT on domestic fuel and power	Energy affordability, energy poverty	The reduced rate of VAT on domestic fuel and power is 5% for supplies used for qualifying domestic purposes. The 5% VAT rate on domestic fuel and power keeps an essential good affordable, mitigating the regressive impact of taxing unavoidable household energy use and supporting public health and fuel‑poverty goals. This applies to various types of residential accommodation, including homes, flats, and care facilities. To qualify, the fuel must be used for domestic purposes, and the supplier must ensure that the supply is to a dwelling or certain types of residential accommodation. The policy applies the reduced VAT rate of 5% to supplies of fuel and power used for domestic purposes (households and residential accommodation) and for charities’ non‑business use. It covers gas and electricity, solid fuel, LPG and heating oil, and heat supplied via heat networks where the end use is qualifying. Other uses are standard‑rated at 20%. For mixed‑use premises, suppliers apportion between qualifying and non‑qualifying consumption or apply HMRC’s de minimis rules, with customers (e.g., charities) providing declarations where required. The relief is delivered automatically on bills (including standing charges) and is set out in the VAT Act 1994 and HMRC Notice 701/19 (Fuel and power).
Carbon Price Support - Exclusion from CPS rates for supplies to good quality CHP stations	Decarbonisation industry competitiveness	Carbon Price Support is a tax in GB on the use of fossil fuels in electricity generation, introduced to incentivise low carbon electricity generation. Exclusion for fossil fuels used in a combined heat and power quality insurance scheme to generate electricity that is self-supplied or supplied direct to the user aim to encourage the use of Combined Heat and Power systems, which are more energy-efficient and environmentally beneficial.
Carbon Price Support - Exclusion for coal slurry for use in electricity generation	Decarbonisation industry competitiveness	Carbon Price Support (CPS) is a tax in GB on the use of fossil fuels in electricity generation, introduced to incentivise low carbon electricity generation. Exclusion for coal slurry was introduced to support the clearing up of old coal mines and reduce the amount of slurry sent to landfill.

Table 2 – Cost Figures for Wider Support Measures

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Cost figures presented using nominal terms over the UK financial year. The cost figures for 2025 to 2026 (and in some cases earlier years) are projections based on previous years’ outturn data.

(*) denotes forecast cost figures

Cost figures presented in £millions

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Measure	Costs 2019 - 2020	Costs 2020 - 2021	Costs 2021 - 2022	Costs 2022 - 2023	Costs 2023 - 2024	Costs 2024 - 2025	Costs 2025-2026
Energy Bills Discount Scheme support for Energy and Trade Intensive Industries (ETIIs) (Final adjustment 2024-2024)	N/A	N/A	N/A	157.70	18.36	N/A	N/A
Capacity Market	939	1103	881	692	1033	1257	N/A
Energy Bills Support Scheme (EBSS)	N/A	N/A	7,673	4,203	N/A	N/A	N/A
Energy Price Guarantee (EPG)	N/A	N/A	6,969	2,560	4,300	N/A	N/A
Energy Bill Relief Scheme (EBRS)	N/A	N/A	3,650	4,025	125	N/A	N/A
Energy Bill Discount Schemes (EBDS)	N/A	N/A	N/A	251,443	154,241	N/A	N/A
Warm Home Discount	311	317	322	399	502	512	890*
Ring-fence oil and gas trade corporate income tax relief, first-year capital allowances for plant and machinery	1,700	1,200	1,200	1,900	1,700	1,900*	1,700*
Ring-fence oil and gas trades corporate income tax relief for decommissioning expenditure	590	450	560	790	870	1000*	1,000*
Allowances against supplementary charge including: Investment Allowance, Cluster Area Allowance, and the Onshore allowance	240	95	290	630	310	230*	210*
Petroleum Revenue Tax relief for decommissioning expenditure	140	370	320	340	330	250*	350*
Exemption from Climate Change Levy for Supplies not for burning/consumption in UK	335	420	620	1,300	1,610	1,900	1,935
Climate Change Agreements scheme (Reduced rate for participants in Climate Change agreements)	250	200	255	235	240	265	275
Exemptions for supplies used in metallurgical and mineralogical processes	185	180	215	215	230	265	270
Exemptions for supplies to Combined Heat/Power stations (CCL)	240	255	280	335	350	380	355
Exemptions for energy supplies not used as fuel	55	50	50	45	40	45	45
Exemption for Supplies used in Some Forms of Transport	40	35	35	30	35	40	50
Tied oils scheme (Industrial Relief Scheme)	1,300	910	380	270	290	260	250
Red Diesel Entitlement	2,400	2,200	2,400	890	850	930	1,000
5% VAT on domestic fuel and power	4,900	4,900	5,400	8,800	7,600	6,800	7,000
Carbon Price Support - Exclusion for CPS rates for supplies to good quality CHP stations	70	60	55	55	50	45	45
Carbon Price Support - Exclusion for coal slurry for use in electricity generation	Negligible	Negligible	Negligible	Negligible	Negligible	Negligible	Negligible
Fuel Duty, including: 1) Rebate of Duty on Aviation Turbine Fuel and Gasoline 2) Rural Fuel Duty Relief 3) Horticultural Producer’s relief 4) Marine Voyages Relief 5) Kerosene used as heating fuel 6) Lifeboats 7) Production of energy for refineries 8) Reduced rate for aqua methanol 9) Lighthouses	N/A	N/A	N/A	N/A	N/A	N/A	N/A
British Industry Supercharger - established April 2024 (This is not a taxpayer funded measure. It is funded by electricity billpayers) Underlying data can change as EMRS / Ofgem settle payments and publish reports 2025/26 Q4 does not have data yet *2026/27 projected using latest 2025/26 data	N/A	N/A	N/A	N/A	N/A	c. 525 - 565	c. 905 - 960

Table 3 – Illustrative value of Free Allocation in the UK Emissions Trading Scheme (ETS)

Here an illustration of the value of free allocation is given by multiplying the average carbon price for each calendar year by the total free allocations given for that calendar year.

Measure	2020	2021	2022	2023	2024	2025
Average UK ETS Carbon Price	N/A	£56	£79	£56	£39	£48
Illustrative value of free allocation in the UK ETS	N/A - UK ETS introduced Jan 2021	£2363.2mn	£3128.4mn	£2060.8mn	£1446.9mn	£1468.8mn

Notes:

1. These values present an illustrative value of free allowances by taking the notional value of the total number of allowances allocated for free at the average UK allowance price in a given scheme year. This does not intend to represent actual value of free allocations which vary dependent on free allocations surrendered.

2. These are different to the value of revenue which comes from primary auctions of allowances (auction volumes are separate to free allocation).

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Capacity market

To be comprehensive in reporting within the COFFIS Inventory, the UK has included the Capacity Market Mechanism. The policy objective of the Capacity Market Mechanism is to ensure security of electricity supply in Great Britain. This needs to be achieved in a cost-effective way while minimising unintended consequences. The Capacity Market is the government’s principal mechanism for ensuring capacity adequacy or, in other words, for securing capacity capable of reliably meeting demand, including at peak times or during system stress events.

The scheme ensures security of electricity supply by providing guaranteed regular capacity payments to successful participants, ensuring they will deliver electricity when needed. As stated in the policy rationale, capacity payments do not renumerate the amount of electricity which participants generate (or the amount of demand reduction procured) but, instead, are paid in return for being available to generate if called upon by the system operator. In this way, they do not directly affect the incentives for participants, including those using fossil fuels, to generate electricity.

It is important to note that the Capacity Market payments are awarded through competitive technology neutral auctions and are not limited to the generation of electricity from fossil fuels, see Table 1. These auctions take place 4 year prior to delivery (T-4) and one year prior to delivery (T-1) to ensure sufficient capacity is available to ensure security of supply.

Table 4 – Contracted nameplate Capacity Market capacity (in GW)^{[footnote 2][footnote 3]}

Delivery year	2022/23	2023/24	2024/25	2025/26	2026/27*	2027/28*	2028/29*
Fossil fuels (coal, gas, diesel, oil)	37.4	38.7	37.6	39.1	37.9	39.7	38.9
Renewables (bio-fuel, hydro, wind, solar, storage)	5.7	8.4	10.7	14.3	14.4	20.7	28.6
Nuclear	6.2	6.7	6.1	6.1	1.2	1.2	1.2
Interconnectors	8.8	8.8	10.3	10.7	10.7	10.6	10.7
Other (Demand Side Response, Energy from Waste, other)	2.7	2.9	3.1	3.9	2.9	3.2	4.2
Total Nameplate Capacity secured for the delivery year (GW)	60.7	65.5	67.8	74.1	67.1	75.5	83.6

*T-1 and T-4 auction data are included for delivery years up to and including 2025/26. T-1 auctions for later years have not yet occurred and are therefore excluded.

Any new build unabated gas funded by the Capacity Market would be expected to play a back-up role, generating only when needed to ensure security of supply and consistent with the governments Clean Power 2030 goal of unabated gas making up to 5% of total generation in a typical weather year by 2030.

The UK will also ensure that any new unabated gas will be ready to decarbonise in future through ‘Decarbonisation Readiness’ legislation coming into force in February 2026. The 2 main options for decarbonisation, power generation with carbon capture and conversion to Hydrogen to Power, will be supported by bespoke arrangements to de-risk investment. The UK has committed to reviewing the Decarbonisation Requirements every 5 years, to ensure that requirements keep pace with the development of the market.

1. Fossil Fuel Subsidies – Topics - IEA ↩

2. Figures for 2022/23–2024/25 reflect actual payments and exclude terminated agreements. Data for 2025/26–2028/29 excludes confirmed terminations as of May 2025 but remains subject to change pending future terminations. ↩

3. Capacity Market delivery year runs from 1 October to 30 September of the following year. ↩