The short answer: four ways the UK prices carbon
A carbon tax is usually a fixed charge for each tonne of greenhouse gas emitted. The UK does not have one that applies across the whole economy. Instead it puts a price on carbon in four main ways, each aimed at different businesses.
| Measure | Who pays | Rate | Official source |
|---|---|---|---|
| UK Emissions Trading Scheme (cap and trade) | Power stations, heavy industry, airlines and larger ships, for their own emissions | Set by the market: £60.17 per tCO2e official monthly average, September 2026. Auction reserve price £28, rising to £29.01 on 1 January 2027 | UK ETS Authority |
| Carbon Price Support (tax) | Owners of fossil fuel power stations and operators of CHP stations in Great Britain | Equivalent of £18 per tonne of CO2, until removal from April 2028 | HMRC and HM Treasury |
| Climate Change Levy, main rates (tax on business energy) | Industrial, commercial, agricultural and public administration users, through their energy bills | £0.00801 per kWh for electricity and for gas from 1 April 2026 | HMRC |
| UK CBAM (tax on embodied emissions in imports) | Importers of aluminium, cement, fertiliser, hydrogen, and iron and steel, once their imports reach £50,000 | A rate per tCO2e for each sector every quarter from 1 January 2027. HMRC's illustrative rates of 16 October 2026 range from £1.45 to £9.79; the first real rates are due before the end of 2026 | HMRC and HMRC illustrative rates |
Carbon Price Support and the UK CBAM are the closest the UK has to carbon taxes, because both are set per tonne of emissions. The Finance Act 2026 creates the UK CBAM as a tax, charged on the emissions embodied in certain imported goods. The main rates of Climate Change Levy are charged on energy, per kilowatt hour or kilogram, and the UK ETS is a trading scheme rather than a tax.
Carbon tax or emissions trading: what is the difference?
Both are forms of carbon pricing. A carbon tax fixes the price of each tonne and leaves the amount of emissions to respond. An emissions trading scheme fixes the amount, through a cap on total emissions, and lets the market set the price of each allowance.
The UK ETS works the second way. Its cap is divided into allowances, each equal to one tonne of CO2 equivalent, and the price moves with supply and demand. The official monthly average fell to £39.46 in March 2026, then rose to £60.17 by September 2026.
Carbon Price Support follows the first approach. When it was set up, the support rate was worked out as a target carbon price minus the forecast Emissions Trading Scheme price. In the Treasury's words in 2026, it was introduced "to strengthen the carbon price for electricity generation above the price provided by the Emissions Trading Scheme".
The UK legislated for a carbon tax but never used it
Finance Act 2019 created a Carbon Emissions Tax, announced at Budget 2018 for use if the UK left the EU without a deal. In 2020 HM Treasury and HMRC consulted on how it would work from 1 January 2021. In December 2020 the government confirmed it would implement a UK ETS from that date instead, and that the Carbon Emissions Tax would not be implemented.
The UK Emissions Trading Scheme
The UK ETS started on 1 January 2021 and covers about 25% of UK territorial emissions, from power, heavy industry, aviation and, since 1 July 2026, domestic maritime. Covered businesses report verified emissions by 31 March and surrender one UK Allowance for every tonne of CO2 equivalent by 30 April each year.
Allowances are auctioned, with a £28 auction reserve price, and some industries receive free allocations. Northern Ireland electricity generators remain in the EU ETS rather than the UK ETS.
See today's UK carbon price for the latest figure, or our UK ETS guide for caps, auctions and deadlines.
Carbon Price Support: £18 a tonne on power generation
Carbon Price Support (CPS) is a tax on fossil fuels used to generate electricity in Great Britain. It was introduced on 1 April 2013 and is paid on top of the UK ETS. Gas, liquefied petroleum gas (LPG) and coal are charged through CPS rates of Climate Change Levy, and certain oils through CPS rates of fuel duty.
The owner of the generating station, or the operator of a combined heat and power (CHP) station, pays. The charge arises when gas passes through the station's meter, or when coal or LPG is delivered through the station gate.
| Fuel | Rate | Unit |
|---|---|---|
| Gas | £0.00331 | Per kilowatt hour (kWh) |
| LPG and other gaseous hydrocarbons in a liquid state | £0.05280 | Per kilogram (kg) |
| Coal and other solid fossil fuels | £1.54790 | Per gigajoule (GJ), gross calorific value |
The Treasury says these rates are frozen at the equivalent of £18 per tonne of CO2. There are no reliefs from the CPS rates, but some generation falls outside them, including:
- Generating stations with a combined capacity below 2MW, and CHP stations of 2MW or below.
- Stand-by generators used only for emergency supply.
- Electricity generation in Northern Ireland.
- Offshore generation outside the UK's 12-mile territorial limit.
Stations fitted with carbon capture and storage pay a reduced rate in proportion to the CO2 they capture. The government says UK ETS and CPS costs feed into wholesale electricity prices and raise retail electricity prices in the short to medium term. It runs a compensation scheme for eligible energy-intensive businesses.
CPS ends in April 2028
On 16 April 2026 the Exchequer Secretary to the Treasury confirmed that CPS will be removed from April 2028, with legislation in a future Finance Bill. The statement said coal has been driven off the grid and the ETS has matured, and that removal will help offset the cost to billpayers of the British Industrial Competitiveness Scheme.
The Carbon Price Floor: a short history
The Carbon Price Floor (CPF) is the policy and Carbon Price Support is the tax that delivers it. HMRC describes the floor as affecting the price of carbon in electricity generation by taxing the fossil fuels used to generate it.
- March 2011: Budget 2011 announced a carbon price floor from 1 April 2013. The Treasury said it would target £30 a tonne of CO2 in 2020, rising to £70 in 2030, in 2009 prices.
- 2013-14: the first support rate was set at £4.94 per tonne of CO2. The Treasury said that was a target carbon price of around £16 a tonne (£19.16 in 2013-14 prices) minus a forecast trading price of £14.21.
- 1 April 2013: CPS rates of Climate Change Levy and fuel duty took effect in Great Britain.
- Budget 2014: the government capped CPS at £18 per tonne of CO2 from 2016-17 to the end of the decade, to limit the competitive disadvantage from carbon price differences between the UK and other countries.
- 1 April 2016 onward: HMRC's published CPS rates have not changed since this date.
- Budget 2025: the government said CPS rates will remain frozen at the equivalent of £18 per tonne of CO2.
- 16 April 2026: the Treasury confirmed CPS will be removed from April 2028.
Climate Change Levy rates for 2026-27
The Climate Change Levy (CCL) is a tax on energy supplied to businesses, created by the Finance Act 2000 for supplies made from 1 April 2001. Energy suppliers add it to the bills of industrial, commercial, agricultural and public administration customers and pay it to HMRC. Supplies to domestic users, non-business users and charities are excluded.
| Taxable commodity | From 1 April 2026 | From 1 April 2027 |
|---|---|---|
| Electricity | £0.00801 per kWh | £0.00827 per kWh |
| Gas | £0.00801 per kWh | £0.00827 per kWh |
| LPG | £0.02175 per kg | £0.02175 per kg |
| Any other taxable commodity (coal, lignite, coke and petroleum coke) | £0.06264 per kg | £0.06468 per kg |
The 2027-28 rates are already law. Section 100 of the Finance Act 2026 sets them for supplies from 1 April 2027. The rates for electricity, gas and solid fuels rise in line with RPI, while the LPG rate stays frozen.
Businesses with a climate change agreement get a percentage discount on the main rates: 92% for electricity, 89% for gas, 77% for LPG and 89% for other taxable commodities. A new six-year climate change agreement scheme sets targets to the end of 2030 and gives reduced rates until March 2033 to businesses that meet their obligations.
Because the main rates are charged per unit of energy rather than per tonne of CO2, CCL works as an energy tax. Its carbon element is Carbon Price Support, which applies only to fuels used to generate electricity.
UK CBAM: a carbon tax on imports from 2027
The UK Carbon Border Adjustment Mechanism (CBAM) starts on 1 January 2027. The Finance Act 2026 creates it as a tax. It puts a carbon price on the emissions embodied in imported aluminium, cement, fertiliser, hydrogen, and iron and steel, so that these goods face a carbon price comparable to the one UK manufacturers pay.
- Who pays: the importer, once the value of their CBAM goods reaches the £50,000 registration threshold.
- Rate: a rate per tonne of CO2e for each sector, published by the government at the start of each quarter. It starts from the average UK ETS auction clearing price in the previous quarter, reduced to reflect free allocation of allowances.
- First payment: returns and payments for imports made in 2027 are due by 31 May 2028.
On 16 October 2026 HMRC published illustrative rates, from £1.45 per tCO2e for fertiliser to £9.79 for aluminium. They are not the rates that will apply: the first real rates, for goods imported from January to March 2027, are due before the end of 2026. See our UK CBAM rates and UK CBAM guide, or use the free UK CBAM calculator to estimate a bill.
What has been announced
| Date | Change | Status |
|---|---|---|
| 1 January 2027 | UK CBAM starts on imports of aluminium, cement, fertiliser, hydrogen, and iron and steel | Law: Finance Act 2026, Part 5 |
| 1 January 2027 | UK ETS auction reserve price starts rising each year in line with the GDP deflator, from £28 to £29.01 for 2027 | Law: SI 2021/484, regulation 6; 2027 figure published by the UK ETS Authority on 21 October 2026 |
| 1 April 2027 | CCL main rates rise to £0.00827 per kWh for electricity and gas, and £0.06468 per kg for other taxable commodities; LPG stays at £0.02175 per kg | Law: Finance Act 2026, section 100 |
| April 2028 | Carbon Price Support removed | Announced 16 April 2026; legislation to follow in a future Finance Bill |
| March 2033 | End of reduced CCL rates under the new climate change agreement scheme, for businesses that meet their obligations | Government response to the 2023 consultation |
The UK and EU are also negotiating to link their emissions trading systems. In December 2025 they said they aim to conclude negotiations by the next UK-EU summit. Nothing had been officially agreed as of 10 October 2026; our UK-EU ETS linking guide explains what a link could mean.
Do households pay carbon tax?
Not directly. The Climate Change Levy is not charged on household energy, and the UK ETS, Carbon Price Support and UK CBAM are paid by businesses and importers. Households can feel the costs indirectly, because the government says UK ETS and Carbon Price Support costs feed into wholesale electricity prices and raise retail electricity prices in the short to medium term.
Some other taxes use carbon dioxide figures without pricing each tonne. For cars registered on or after 1 April 2017, for example, the first vehicle tax payment is based on the car's CO2 emissions.
Questions
Does the UK have a carbon tax?
Not a single economy-wide one. The UK prices carbon through the UK ETS, Carbon Price Support on power generation in Great Britain, the Climate Change Levy on business energy and, from 1 January 2027, the UK CBAM on some imports.
How much is carbon tax in the UK per tonne?
Carbon Price Support is the equivalent of £18 per tonne of CO2 for power generators in Great Britain. UK ETS allowances are priced by the market: the official monthly average was £60.17 per tonne of CO2 equivalent in September 2026. For UK CBAM, HMRC has published only illustrative rates so far, from £1.45 to £9.79 per tCO2e; the first real rates are due before the end of 2026.
What is Carbon Price Support?
A tax on gas, LPG, coal and certain oils used to generate electricity in Great Britain, charged through Climate Change Levy and fuel duty at the equivalent of £18 per tonne of CO2, on top of the UK ETS.
What is the UK carbon price floor?
The policy, in place since 1 April 2013, of topping up the carbon price paid by power generators in Great Britain. It is delivered through Carbon Price Support, which has been capped at £18 per tonne of CO2 since 2016-17.
Is Carbon Price Support being scrapped?
Yes. On 16 April 2026 the Treasury confirmed CPS will be removed from April 2028, with legislation in a future Finance Bill. Until then it stays frozen at the equivalent of £18 per tonne of CO2.
What are the Climate Change Levy rates for 2026-27?
From 1 April 2026: £0.00801 per kWh for electricity, £0.00801 per kWh for gas, £0.02175 per kg for LPG and £0.06264 per kg for any other taxable commodity, such as coal.
Do households pay the Climate Change Levy?
No. Supplies to domestic users, non-business users and charities are excluded. Households may still bear some carbon costs indirectly through electricity prices.
What is the difference between a carbon tax and an emissions trading scheme?
A carbon tax fixes the price per tonne and lets emissions vary. An emissions trading scheme such as the UK ETS caps total emissions and lets the allowance price vary.
Is UK CBAM a carbon tax?
In effect, yes. The Finance Act 2026 creates it as a tax charged on the emissions embodied in certain imported goods, from 1 January 2027, at a rate per tonne of CO2 equivalent.
Sources
- HMRC: Climate Change Levy rates (updated 27 November 2025) (checked 10 October 2026)
- HMRC: Register for Climate Change Levy (checked 10 October 2026)
- HMRC: Excise Notice CCL1/6, a guide to carbon price floor (checked 10 October 2026)
- legislation.gov.uk: Finance Act 2000, Schedule 6 as enacted (paragraph 10) (checked 10 October 2026)
- legislation.gov.uk: Finance Act 2026, section 100 (rates of climate change levy) (checked 10 October 2026)
- legislation.gov.uk: Finance Act 2026, Part 5 (Carbon Border Adjustment Mechanism) (checked 10 October 2026)
- HM Treasury: Budget 2025 overview of tax legislation and rates (checked 10 October 2026)
- UK Parliament: Written statement HCWS1519, Carbon Price Support (16 April 2026) (checked 10 October 2026)
- HM Treasury: Government publishes response to carbon price floor consultation (30 March 2011) (checked 10 October 2026)
- DESNZ and BEIS: Policy impacts on prices and bills (last updated 6 November 2014) (checked 10 October 2026)
- HM Treasury and HMRC: Carbon Emissions Tax, consultation and outcome (2020 to 2021) (checked 10 October 2026)
- HM Treasury and HMRC: Carbon Emissions Tax, consultation document (21 July 2020) (checked 10 October 2026)
- legislation.gov.uk: Finance Act 2019, Part 3 (carbon emissions tax) (checked 10 October 2026)
- UK ETS Authority: UK ETS policy overview (updated 21 October 2026) (checked 28 October 2026)
- UK ETS Authority: Participating in the UK ETS (updated 1 July 2026) (checked 10 October 2026)
- UK ETS Authority: CCM trigger prices and average monthly prices, full table (updated 12 October 2026) (checked 28 October 2026)
- legislation.gov.uk: Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021 (SI 2021/484), regulation 6 (checked 10 October 2026)
- HMRC: UK CBAM policy summary (updated 9 September 2026) (checked 10 October 2026)
- HMRC: Illustrative CBAM rates and worked example, 16 October 2026 (checked 24 October 2026)
- DESNZ: Compensation for the indirect costs of the UK ETS and the CPS mechanism, guidance for applicants (checked 10 October 2026)
- DESNZ: Climate Change Agreements, consultation on a new scheme, government response (checked 10 October 2026)
- GOV.UK: UK-EU Joint Statement (updated 22 December 2025) (checked 10 October 2026)
- GOV.UK: Vehicle tax rates (checked 10 October 2026)
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