The Climate Change Levy (CCL) was set up to encourage the business and public sectors to improve energy efficiency and reduce emissions of greenhouse gases through a price based signal on energy usage.

In order to protect the competitiveness of energy intensive sectors subject to international competition, Climate Change Agreements (CCA’s) were introduced alongside the levy which provide an 80% discount on the levy if challenging targets are agreed and met for improving energy efficiency or reducing greenhouse gas emissions.

The package of measures introduced with the Climate Change Levy also included the Carbon Trust and the Government’s Enhanced Capital Allowance Scheme for investments in energy saving technologies and products. Both help businesses reduce their energy use and the development and adoption of low carbon technologies. The Carbon Trust is funded (at least in part) by the levy. The levy receipts also offset the tax revenues forgone by the Government due to the use of enhanced capital allowances.

The CCL came into effect on 1st April 2001 and applies to energy used in the non-domestic sector (industry, commerce, and the public sector).

Rates of the levy are: -

- 0.15p/kWh for gas
- 1.17p/kg (equivalent to 0.15p/kWh) for coal
- 0.96p/kg (equivalent to 0.07p/kWh) for liquefied petroleum gas (LPG)
- 0.43p/kWh for electricity

The levy does not apply to fuels used by the domestic or transport sector, or fuels used for the production of other forms of energy (e.g. electricity generation) - there are also other specific energy sources that are exempt, including electricity generated from new renewables.