Environmental Levies, Climate Change Levy & Carbon Allowances

By Paul Homewood




Just to update the Environmental Levies situation:

1) To get to the table above, click on the link below it, then scroll to:


and look for Table 2.7.

2) A bit more detail on the Climate Change Levy:

The costs above, ie £1.1bn for 2021/22, are made of:

a) Levy charged on energy bills to businesses

b) Levy paid on fossil fuels by electricity generators. In  particular, they have to pay 0.331p/kwh for natural gas used ( and other rates for coal etc).

Assuming energy efficiency of 53% at a CCGT plant, this cost would gross up to 0.625p/KWh, or £6.25/MWh.

As market prices tend to be set by CCGT, which is the marginal supply, this amount ends up being added to the market wholesale price. It therefore ends up as being windfall profit for renewable generators (other than CfD).

3) Emission Trading Scheme (ETS)

The UK ETS system was only introduced last year, to replace the EU scheme, which it mirrors.




The OBR does not show it as an Environmental Levy because it is a tax, rather than an imposition, but it is included in Current Receipts.

Rather alarmingly it is projected to jump from £0.9bn this year to £4.9bn in 2022/23, although UK ETS prices have already nearly doubled since last May, so some of this increase may already be baked in.

As well as power generators, energy intensive industry and domestic aviation (incl Europe) are covered by the scheme, so it is difficult to calculate how much the generators pay. But my guess would be at least half, meaning £2.5bn next year.

More detail on ETS here.

When we add this altogether for 2022/23, we get:


Env Levies : £9.2bn

CCL:               £1.9bn

ETS:               £4.9bn

TOTAL:         £16.0bn

While not all of this appears in domestic energy bills, the public ends up paying the bill one way or other.



January 15, 2022 at 11:51AM

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