Is it fair that businesses pay higher energy prices?

A recent paper from Energy UK, "Reducing Non-Domestic Electricity Policy Costs to Drive Economic Growth," argues that the UK's current energy pricing structure unfairly burdens businesses with environmental policy costs, hindering economic growth and the transition to net zero.

Energy UK is the leading trade association for the UK's energy industry, representing over 100 companies across the energy sector, including the biggest energy suppliers.

To address the balance Energy UK proposes removing environmental policy levies on business electricity prices and instead collecting these costs through general taxation.

This article written by the energy experts at Business Energy Deals analyses the situation.

Environmental policy costs on electricity rates

There are four key environmental policy costs that are incorporated into electricity bills for properties in Britain.

Here we explain each cost including how they impact domestic and business electricity bills.

Contracts for Difference:

The Contracts for Difference scheme is a subsidy for renewable energy generators, topping up the price they receive for their electricity.

This subsidy is funded through both domestic and business electricity bills and has been estimated to have added 2.9% to rates since the scheme began.

Climate Change Levy:

The Climate Change Levy is an environmental tax designed to encourage improvements in business energy efficiency.

In 2025/26, it applies to all businesses except microbusinesses at a rate of 0.775p/kWh. Households are exempt.

Renewables Obligation:

Suppliers are mandated to present a certain number of Renewable Obligation Certificates (ROCs) per megawatt-hour (MWh) of electricity supplied.

The scheme impacts both domestic and non-domestic electricity supplies equally at a cost of approximately 3p/kWh.

Capacity Market:

The Capacity Market scheme ensures electricity supply security by paying generators to be on standby.

It currently adds around 0.20p per kWh to all electricity users' bills in the UK but is expected to rise significantly over time as the share of intermittent renewables increases.

Do businesses pay more for environmental costs?

The costs of the environmental schemes above are paid by licensed energy suppliers, who have discretion in how they apply these to their tariffs.

This means suppliers may choose to pass a greater share of the costs on to business customers, but this is not mandated by the UK government.

Our analysis shows that only the Climate Change Levy explicitly requires charging businesses while exempting households.

At current rates, it adds approximately 4% to consumption charges and 3% to overall business electricity bills.

Recommendations from the Energy UK report

The Energy UK report proposes removing legacy environmental policy costs and the Climate Change Levy from electricity bills and instead raising these through general taxation and a carbon pricing.

The impact of these proposals would be a decrease in all electricity rates and the levelling out of household and business electricity bills.

The report estimates that the removal of these environmental costs would reduce business electricity bills by 15%, making businesses more competitive.

The view from our experts

It is unsurprising that Energy UK’s recommendation is to cut electricity policy costs since they represent the business energy suppliers who would benefit from increased demand.

However, it is important to recognise that artificially raising electricity bills through environmental costs is a barrier to the adoption of green technologies such as heat pumps and electric vehicles that are vital to the UK's net zero goals.

Deciding where to place taxes in the economy is always a balancing act. Shifting costs off business energy bills may boost competitiveness and support decarbonisation, but it also means finding that revenue elsewhere. Every choice comes with trade-offs, and the challenge for government is weighing short-term fairness against long-term priorities.