Climate Change Levy Exemptions | Which Sectors Qualify and How to Claim

Quick summary: Understanding Climate Change Levy Exemptions can help eligible organisations reduce energy costs by identifying qualifying activities, sectors, and relief schemes while ensuring compliance with HMRC requirements.

What is the Climate Change Levy?

The Climate Change Levy (CCL) is a UK government environmental tax applied to energy supplied to businesses and public sector organisations. Introduced in 2001, the levy was designed to encourage energy efficiency, reduce greenhouse gas emissions and support the UK’s wider environmental objectives.

CCL is charged on taxable supplies of electricity, natural gas, liquefied petroleum gas (LPG), and other taxable fuels used by non-domestic consumers. The levy is typically included within business energy bills and collected by energy suppliers on behalf of HM Revenue & Customs (HMRC).

The principle behind the levy is simple. Organisations that consume energy are encouraged to reduce waste and improve efficiency. By placing a cost on energy consumption, the scheme creates a financial incentive to invest in lower-carbon technologies, energy-saving equipment, and sustainable operational practices.

While many businesses are required to pay the levy, several exemptions and relief schemes exist for specific sectors, activities, and energy uses.

Who normally pays the Climate Change Levy?

Business energy users

The majority of commercial organisations in the UK are liable to pay Climate Change Levy charges on their energy consumption. This includes businesses operating in various sectors such as retail, hospitality, manufacturing, logistics, offices, healthcare, education and professional services.

When a business receives electricity or gas from a licensed supplier, the supplier will generally add the appropriate CCL charge to the energy bill unless an exemption or reduced rate applies.

For many organisations, the levy represents a relatively small proportion of overall energy costs. However, for businesses with high energy consumption, particularly those operating industrial processes, the financial impact can be significant.

Excluded energy use

Not all energy consumption falls within the scope of the Climate Change Levy. Domestic households do not pay CCL on their energy supplies, and certain non-business activities may also be excluded.

In addition, some specific uses of energy qualify for exemption due to their economic importance, environmental benefits or unique operational requirements. Understanding these exclusions is essential for organisations seeking to minimise unnecessary energy costs while remaining compliant.

Main Climate Change Levy exemptions

Several exemptions exist within the legislation, allowing qualifying organisations to avoid paying the levy on specific energy supplies or activities.

Domestic use

One of the most widely recognised exemptions relates to domestic energy consumption. Residential properties do not pay Climate Change Levy charges on electricity, gas or other qualifying fuels used within the home.

This exemption also extends to certain forms of residential accommodation, including some care homes, student accommodation and other facilities that meet HMRC’s criteria for domestic use.

Charity non-business use

Registered charities may qualify for CCL exemptions when energy is used solely for non-business activities.

Examples can include:

• Community outreach programmes
• Religious activities
• Free educational services
• Public welfare initiatives
• Charitable support services

However, where a charity undertakes commercial activities, such as operating a café, gift shop or paid service, energy used for those activities may remain subject to the levy.

Renewable electricity

Historically, certain renewable electricity supplies received exemption treatment under Climate Change Levy rules. Although some aspects of renewable electricity exemptions have changed over time, businesses generating and consuming renewable energy on-site may still benefit from reduced exposure to levy-related costs.

Organisations investing in solar panels, wind generation, battery storage systems and other renewable technologies often achieve wider energy savings alongside environmental benefits.

Certain industrial processes

Some industrial processes qualify for exemption where energy is used in specific ways defined by legislation.

These exemptions typically apply when energy is used as a raw material or forms an essential part of a chemical or metallurgical process rather than simply being consumed as fuel.

Examples may include:

• Metallurgical processing
• Electrolytic processes
• Mineralogical activities
• Certain chemical manufacturing operations

Eligibility requirements can be highly technical, making professional advice valuable when assessing qualifications.

Combined Heat and Power

Combined Heat and Power (CHP) systems simultaneously generate electricity and useful heat from a single fuel source.

Because CHP systems can achieve significantly higher efficiencies than conventional energy generation methods, qualifying CHP-generated electricity may benefit from Climate Change Levy exemptions or relief arrangements.

Many large industrial facilities, hospitals, universities, and manufacturing sites use CHP systems to improve efficiency while reducing overall energy costs.

Sectors that may qualify for CCL exemptions or relief

While eligibility depends on specific circumstances rather than sector alone, several industries commonly qualify for exemptions or reduced rates.

Manufacturing

Manufacturing businesses are among the most frequent beneficiaries of Climate Change Levy relief schemes.

Many manufacturing operations involve energy-intensive production processes that may qualify for sector-specific exemptions, Climate Change Agreements (CCAs) or reduced levy rates.

Industries such as steel production, chemicals, food processing, paper manufacturing, ceramics, and glass production often explore these opportunities to manage operating costs effectively.

Agriculture and horticulture

Agricultural businesses may qualify for exemptions where energy is used in certain agricultural or horticultural activities.

Examples include:

• Crop production
• Greenhouse operations
• Livestock management
• Horticultural growing facilities
• Protected cultivation environments

The exact treatment depends on how the energy is used and whether the activity falls within qualifying HMRC definitions.

Charities and care providers

Many charities and care providers operate facilities that may qualify for domestic-use treatment or charitable exemptions.

Care homes, hospices, supported living facilities and charitable organisations should regularly review their energy arrangements to ensure they are not paying unnecessary Climate Change Levy charges.

Energy-intensive industries

Energy-intensive industries often face substantial energy costs and may therefore benefit significantly from relief schemes.

Examples include:

• Steel manufacturing
• Cement production
• Glass manufacturing
• Chemical processing
• Foundries
• Paper production
• Ceramics manufacturing

Many organisations in these sectors participate in Climate Change Agreements, allowing them to access reduced levy rates in exchange for meeting energy efficiency targets.

Sector eligibility overview

Climate Change Agreements and Reduced CCL Rates

What CCAs cover

Climate Change Agreements (CCAs) are voluntary agreements between eligible energy-intensive sectors and the UK government.

Under a CCA, participating organisations commit to achieving energy-efficiency or carbon-reduction targets. In return, they receive substantial discounts on Climate Change Levy charges.

The scheme aims to balance environmental objectives with industrial competitiveness by supporting businesses that actively reduce energy consumption.

CCAs are particularly common in sectors where energy costs constitute a significant share of operating expenditure.

Reduced rate eligibility

To qualify for reduced rates under a Climate Change Agreement, businesses must generally:

• Operate within an eligible sector
• Meet participation requirements
• Achieve agreed efficiency targets
• Maintain appropriate records
• Comply with reporting obligations

Failure to meet targets may affect eligibility, making ongoing monitoring and energy management essential.

How to claim a Climate Change Levy exemption

Businesses that believe they qualify for an exemption should follow a structured process to ensure the correct treatment is applied.

Check your eligibility

The first step is to determine whether your organisation, activity, or energy use meets the relevant exemption criteria.

This may involve reviewing:

• Business activities
• Energy consumption patterns
• Sector classification
• Charitable status
• Industrial processes
• CHP certification

Professional energy consultants can help identify opportunities that might otherwise be overlooked.

Complete the supplier certificate

Where an exemption applies, businesses often need to complete the appropriate supplier certificate or declaration.

This document confirms the basis of the exemption and provides the supplier with the information needed to apply the correct treatment to future bills. Accuracy is important, as incorrect declarations can lead to compliance issues later.

Send evidence to your supplier

Supporting evidence may be required before the supplier can apply the exemption.

Examples include:

• Registration certificates
• Process documentation
• Charity registration details
• Energy usage records
• CHP certification
• CCA participation evidence

Providing complete information helps avoid delays.

Review your bills

After approval, businesses should carefully review future energy invoices to ensure the exemption or reduced rate has been applied correctly.

Regular reviews can identify billing errors and ensure that any changes in business activities do not affect eligibility.

Records to keep for CCL exemptions

Maintaining accurate records is essential for supporting exemption claims and demonstrating compliance if questioned by HMRC.

Energy use evidence

Businesses should retain evidence showing how energy is consumed within their operations.

Useful records may include:

• Energy invoices
• Meter readings
• Consumption reports
• Process energy data
• Operational records
• Site plans

These documents help verify that qualifying energy uses remain consistent.

Eligibility documents

Organisations should also maintain documentation supporting their exemption status. This information may be requested during supplier reviews, audits, or HMRC investigations.

Documentation checklist

Conclusion

Climate Change Levy exemptions can provide meaningful savings for eligible organisations while supporting broader energy efficiency objectives. Although most businesses pay the levy on their energy supplies, numerous exemptions and relief schemes exist for domestic use, charities, renewable energy generation, industrial processes, Combined Heat and Power systems and energy-intensive industries.

Understanding eligibility criteria, maintaining appropriate records and regularly reviewing energy bills are essential steps in ensuring organisations receive the relief they are entitled to. By taking a proactive approach to energy management and compliance, businesses can reduce costs while supporting sustainability goals.

How D-ENERGi can support business energy customers

Understanding Climate Change Levy exemptions can be challenging, particularly for organisations operating across multiple sites or complex industrial environments.

D-ENERGi supports business energy customers by helping them better understand energy costs, consumption patterns and potential opportunities for efficiency improvements. Through energy procurement support, consumption analysis and expert guidance, businesses can gain greater visibility over their energy expenditure and identify areas where relief schemes or reduced rates may apply.

Regular energy reviews can help organisations remain compliant while ensuring they are not paying unnecessary charges. For businesses operating within manufacturing, agriculture, care services, or energy-intensive industries, professional guidance can be particularly valuable when assessing eligibility for Climate Change Agreements and other forms of relief.

Frequently Asked Questions (FAQs)

Which businesses are exempt from Climate Change Levy?

Businesses are not automatically exempt based on their industry alone. However, organisations involved in qualifying industrial processes, charitable non-business activities, agriculture, horticulture, and certain energy-intensive sectors may qualify for exemptions or reduced rates.

Can manufacturers claim CCL relief?

Yes. Many manufacturers qualify for relief through Climate Change Agreements, industrial process exemptions, or Combined Heat and Power arrangements, depending on their operations.

What is a Climate Change Agreement (CCA)?

A Climate Change Agreement is a voluntary arrangement between eligible energy-intensive businesses and the government. Participating organisations commit to energy efficiency targets in exchange for reduced Climate Change Levy rates.

How often should businesses review their eligibility?

Businesses should review eligibility whenever operations change and conduct at least an annual assessment to ensure exemptions and reliefs remain applicable.

Can charities receive Climate Change Levy exemptions?

Yes. Registered charities may qualify for exemptions where energy is used for non-business charitable activities. Commercial activities carried out by charities may remain liable for CCL charges.