The Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2026
The Treasury enacted these Regulations on March 11, 2026, immediately amending the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005 to specify certain industrial uses as exempt from the Climate Change Levy.
Specifically, the amendments introduce hydrogen production via electrolysis and the use of natural gas as a carbon dioxide source in sodium bicarbonate production as 'wholly non-fuel uses', thereby removing the levy charge on the energy inputs for those specific processes.
Arguments For
Exempting electricity used for hydrogen production via electrolysis supports the decarbonisation agenda and the development of the hydrogen economy.
Specifying the use of natural gas in sodium bicarbonate production as a non-fuel use provides regulatory clarity for an established industrial process relevant to chemical manufacturing.
Arguments Against
Expanding exemptions to the Climate Change Levy may reduce general government revenue intended to incentivise emissions reductions across the economy.
Introducing exemptions for specific processes might create precedents that lead to lobbying for further carve-outs, complicating the overall structure of the levy.
STATUTORY INSTRUMENTS
2026 No. 280
CLIMATE CHANGE LEVY
The Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2026
Made - - - -
11th March 2026
Coming into force - -
12th March 2026
The Treasury make these Regulations in exercise of the powers conferred by paragraph 18(2) and (3) of Schedule 6 to the Finance Act 2000( 1 ).
In accordance with paragraph 146(3) of Schedule 6 to that Act, a draft of the instrument was laid before, and approved by a resolution of, the House of Commons.
These are the official details of the Statutory Instrument (SI 2026 No. 280) concerning the Climate Change Levy.
The Treasury enacted these Regulations on March 11, 2026, and they became effective the following day, March 12, 2026.
The authority for making these rules comes from specific paragraphs within Schedule 6 of the Finance Act 2000.
Before being finalized, a draft of this instrument had to be presented to and approved by a resolution of the House of Commons.
Citation and commencement
- -(1) These Regulations may be cited as the Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2026.
- (2) These Regulations come into force on the day after the day on which they are made.
This initial provision establishes the official short title for this legislation as the Climate Change Levy (Fuel Use and Recycling Processes) (Amendment) Regulations 2026.
Paragraph (2) confirms the commencement date; the rules became legally active the day following their making date, which was March 11, 2026.
Amendment of the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005
- -(1) The Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005( 2 ) are amended as follows.
- (2) In Schedule 1 (uses otherwise than as fuel)-
- (a) In Part A (wholly non-fuel uses), at the end of the list in paragraph 1, after 'Advanced chemicals from other more basic chemicals' insert the following entry-
'Hydrogen';
- (b) In Part B (mixed uses), after paragraph 31 insert-
' 31A. Natural gas as a source of carbon dioxide to produce sodium bicarbonate from soda ash'.
This section details the changes being made to the previous 2005 Regulations concerning the Climate Change Levy.
The amendments focus on Schedule 1, which lists uses of fuel energy that are exempt because they are not primarily for heating or power generation (non-fuel uses).
Sub-paragraph (a) adds 'Hydrogen' to Part A, meaning electricity used solely for producing hydrogen is now fully exempt as a non-fuel use.
Sub-paragraph (b) inserts a new provision into Part B for mixed uses, clarifying that natural gas used specifically as a source of carbon dioxide when making sodium bicarbonate from soda ash is treated as a non-fuel use.
( 1 ) 2000 c. 17.
( 2 ) S.I. 2005/1715, amended by section 99 of, and paragraph 9 of Schedule 20 to, the Finance Act 2014 (c. 26), and S.I. 2014/844; there are other amending instruments but none is relevant.
These footnotes provide the legal citations for the legislation referenced within the instrument.
Citation (1) refers to the Finance Act 2000, chapter 17.
Citation (2) details the principal legislation being amended, the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005, along with subsequent legislation that previously amended it during the reporting period.
EXPLANATORY NOTE
(This note is not part of the Regulations)
Climate change levy is charged on supplies of electricity, gas and solid fuels that are not for domestic or charity use. Supplies for non-fuel use are exempt.
These Regulations amend Parts A and B of Schedule 1 to the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005 (S.I. 2005/1715) in order that electricity used in electrolysis for the production of hydrogen, and natural gas used partly as fuel and partly as a source of carbon dioxide in the production of sodium bicarbonate from soda ash, are specified as non-fuel uses.
A Tax Information and Impact Note covering this instrument will be published on the HMRC website at https://www.gov.uk/government/collections/tax-information-and-impact-notes-tiins.
The Explanatory Note clarifies that the Climate Change Levy is generally imposed on commercial or industrial supplies of energy, but excludes domestic use and charity use.
The core purpose of these specific Regulations is to update the list of exempt activities in the 2005 Regulations.
They formalize the exemption for electricity used in electrolysis to make hydrogen, and for natural gas used as a carbon dioxide supplier in the manufacturing of sodium bicarbonate, officially classifying these as recognized non-fuel uses.
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