The UK Government has announced plans to remove the Climate Change Levy (CCL) on electricity used for electrolytic hydrogen production, in a bid to reduce costs and boost the sector’s growth.

The decision was revealed alongside the Chancellor’s Spring Statement, with the Treasury confirming that the government will review the CCL to ensure it does not act as a barrier to low-carbon hydrogen production. The CCL, an energy tax aimed at encouraging businesses to improve energy efficiency and reduce carbon emissions, is currently charged at £0.00775 per kilowatt-hour (kWh) for electricity.

Electricity is the largest operational cost for electrolytic hydrogen production, contributing up to 80% of the total levelised cost of hydrogen (LCOH). By scrapping the CCL, the government hopes to enhance the competitiveness of the UK’s hydrogen industry and support its ambitions of becoming a global clean energy leader.

Hydrogen UK, a leading trade body, welcomed the move, stating, “Hydrogen UK welcomes the announcement in the Chancellor’s Spring Statement that the Government is committed to removing the Climate Change Levy costs from electricity used in electrolytic hydrogen production – an issue we have been working closely with the government to resolve.”

The organisation also highlighted that the announcement comes at a crucial time for the sector, as the government prepares to publish the shortlist for the Second Hydrogen Allocation Round (HAR2) and finalise the First Hydrogen Allocation Round (HAR1). These funding initiatives are expected to provide essential support for low-carbon hydrogen production in the UK, driving investment and industry expansion.

Nevertheless, the true effect of eliminating the CCL is still uncertain, as numerous producers already bypass the charge by obtaining electricity through Power Purchase Agreements (PPAs) supported by Renewable Energy Guarantees of Origin (REGOs).

The government’s consultation is set to conclude on May 7, 2025.