Innovative Energy Consultancy Ltd
Innovative Energy Consultancy Ltd

Budget confirms key changes to energy tax rates

The Treasury delivered the Budget on 29 October, setting out revenues and expenditures for the coming tax year. While there was little on energy in Chancellor Philip Hammond’s speech, Budget documents provided clarity on issues including carbon pricing and Climate Change Levy (CCL) rates, as well as more detail on how the government’s no deal Brexit plans and several other fiscal decisions will impact industry and commercial energy users.

Carbon pricing

One major confirmation in the Budget was on carbon pricing. The Total Carbon Price is currently made up of the EU Emissions Trading Scheme (ETS) carbon price and the UK’s Carbon Price Support (CPS) and charges power stations and other major industrial installations per tonne of carbon emitted.

The government said it will continue its freeze of the CPS rate at £18/tCO2 for 2020-21. But, reflecting the fact that the price of EU ETS allowances has risen significantly over recent months, the government will seek to reduce the CPS rate if the Total Carbon Price remains high.

A draft Brexit agreement was backed by Prime Minister Theresa May’s cabinet on 14 November, which if implemented would see the UK introduce a carbon pricing system with “at least the same effectiveness and scope” as the EU ETS, which the UK will no longer be a part of from March 2019.

The Budget detailed the government’s plans in the event of a no deal Brexit. A Carbon Emissions Tax would be introduced to help meet the UK’s legally binding carbon reduction commitments set under the Climate Change Act 2008. The tax would replace the EU ETS and would apply to all stationary installations currently participating in it from 1 April 2019. A rate of £16 would apply to each tonne of CO2 emitted.

However, a letter from the Lords EU Energy and Environment Sub-Committee dated 14 November, criticised the government for a lack of clarity concerning the impact on EU ETS carbon prices in the event that UK allowances become invalid. It also asked how the £16/ tonne of CO2 value had been decided and sought clarification on whether the price would be changed to match any changes in the EU ETS. Additionally, the committee asked what assessment the government had made of the impact a no deal scenario would have on costs for energy users. As yet the government has not responded.

Climate Change Levy rates

The Budget also set the Climate Change Levy (CCL) main rates for 2020-21 and 2021-22 and continues the government’s commitment to rebalance the main rates paid for gas and electricity.
The CCL is a tax on non-domestic energy users which aims to incentivise energy efficiency measures and to reduce carbon emissions, although some sectors are exempted from paying the full rate through Climate Change Agreements, and charities, and non-domestic users consuming less than 4.4MWh of gas per month, or 1MWh of electricity per month are wholly exempt.

The Budget sated that the electricity rate will be lowered in 2020-21 and 2021-22. The gas rate will increase in 2020-21 and 2021-22 so it reaches 60% of the electricity main rate by 2021-22. The current main rate of CCL is £0.00583/KWh, with natural gas taxed at £0.00203/KWh. Other fuels, such as coal, will continue to align with the gas rate. The discount for sectors with Climate Change Agreements are set to change to reflect the change in CCL main rates.

Policy costings by HM Treasury reveal that there is no net change in revenues expected from these moves, except in 2023-24 where an additional £5mn is raised.

Support for business

Larger businesses will benefit from a new fund under the government’s Industrial Strategy, announced in the Budget. The Industrial Energy Transformation Fund is set to be established, with up to £315mn of investment to support businesses with high energy use. Support will be given to help firms transition to a low-carbon future and to cut their bills through measures to increase energy efficiency. A new call for evidence is also set to be launched shortly on introducing a new Business Energy Efficiency Scheme, although this will be focused on smaller businesses.

Detail was also provided on the closure of Enhanced Capital Allowances (ECAs). The ECA scheme gives tax breaks to businesses wanting to invest in energy-saving plant or machinery that might otherwise be too expensive. The first-year allowances let businesses set 100% of the cost of the assets against taxable profits in a single tax year. However, the government said that ECAs and first year allowances for technologies on the Energy Technology List and Water Technology List will cease from April 2020. It was stated that ECAs “add complexity” to the tax system and the government believes there are “more effective ways” to support energy efficiency. However, they have now been extended to companies investing in electric vehicle charge points to March 2023.

Industry reaction

Stakeholders across the commercial and energy sectors commented on the outcomes of the Budget, with reaction broadly split between support from business groups to disappointment from renewables advocates at the lack of new measures. Trade body Energy UK’s Chief Executive Lawrence Slade welcomed the clarity provided on CPS rates up to 2020-21 and added that it was “encouraging to hear that government will be investing in business energy efficiency.” The Energy Intensive Users Group also hailed the delivery of low-carbon transition funding for firms.

Stephen Elliott, Chair of the Group said: “The delivery of an energy transformation fund for industry is enormously welcome and we look forward to further details of how the scheme will operate and how best industry can put it to use.” However, he also cited figures showing the UK paying the highest industrial electricity prices in the EU, adding “it is essential we start to see more practical action.”

In contrast, the Renewable Energy Association raised concerns over support for renewable energy deployment and clean growth. Policy and External Affairs Director James Court said: “Next to nothing in this Budget will help build clean energy infrastructure we so desperately need, and in parts actively harms the industry. Carbon prices frozen, tax allowances for energy products scrapped, and a continued block to market for the cheapest forms of electricity” were all detrimental. On buildings, Julie Hirigoyen, Chief Executive at UK Green Building Council, also criticised the withdrawal of ECAs, and said: “it is now more important than ever that businesses show real leadership in reducing emissions”.


Businesses will be pleased with the funding support for low-carbon initiatives and clarity on energy-related taxes, however much uncertainty remains longer-term on these issues due to continued lack of clarity on Brexit.

Thank you! Your subscription has been confirmed. You'll hear from us soon.
Sign up to receive Energy Brief, which includes our monthly report on Industry News and Market Price Trends.