Valerie chairs Fifth Delegated Legislation Committee

I chaired the Fifth Delegated Legislation Committee on Wednesday 4 March 2026: The Climate Change Levy ( Fuel Use and Recycling Processing Amendment Regulations 2026. Here is a full  explanation of what the legislation proposed:

Climate change levy (“CCL”) is a tax on the supply of taxable commodities (electricity, gas and solid fuels) that are not for domestic or charity use. Taxable commodities that are classified as not being used as fuel are exempt from CCL. Taxable commodities that have mixed uses may also be classified as not being used for fuel. A mixed use is where a taxable commodity is partly used as a fuel and partly used for other purposes. This instrument exempts electricity used in electrolysis to produce hydrogen from CCL. It also exempts natural gas used partly as a source of carbon dioxide to produce sodium bicarbonate from soda ash. It does this by amending Parts A and B of Schedule 1 to the Climate Change Levy (Fuel Use and Recycling Processes) Regulations 2005 (S.I. 2005/1715) (“the principal Regulations”) so that their supply for use in the processes described are classified as non-fuel uses.

What is being done and why?
1 CCL is a tax designed to encourage energy efficiency. In keeping with that rationale,  the non-fuel use exemption has always formed part of CCL on the basis that taxable commodities are exempt from the tax when they are not used for energy purposes.
2 When produced in a low carbon manner, hydrogen has the potential to support the government’s 2030 clean power and 2050 net zero ambitions. One method of producing low carbon hydrogen is via electrolysis of water. Presently, electricity used to produce hydrogen in this way is subject to CCL even though it is not used as a fuel. This puts this method of hydrogen production at a disadvantage compared to hydrogen production via steam reformation. The use of natural gas in the latter process is already exempt from CCL on the basis that it is not used as a fuel.
3 Presently, natural gas used as a source of carbon dioxide to produce sodium bicarbonate from soda ash is also subject to CCL, even though it is partly used as a non-fuel in that process. The use of natural gas as a source of carbon dioxide to
produce sodium bicarbonate from soda ash is a mixed use and its use as a raw material in that process is not “merely incidental” to its use as a fuel1. In the UK, the production of sodium bicarbonate via other methods ceased in 2025, in part because of high energy costs.

4 As a tax designed to encourage energy efficiency, it is consistent with the objectives of CCL for these uses of electricity and natural gas to be exempt from the tax. This would also support wider government objectives by removing an additional cost that could discourage investment in these production methods.
5 There is interest from industry in exempting these uses of electricity and natural gas.

What was the previous policy, how is this different?
6 The supplies of electricity and natural gas that will be exempted from CCL as a result of this instrument have not previously been exempt under the non-fuel use exemption. It is not known why electricity used in electrolysis to produce hydrogen was not exempted when CCL was first developed over 25 years ago, but recent negotiations with potential hydrogen production projects under the government’s Hydrogen Allocation Rounds2 (a separate government mechanism to help fund such projects) and therefore the expansion of the use of this process, have brought the issue to light now. Using natural gas as a source of carbon dioxide to produce sodium bicarbonate from soda ash is a new technology that did not exist when the principal Regulations were made or last amended.
Minister Dan Tomlinson introduced the legislation which was agreed.