Under the current levy, gas producers pay less than electricity producers, even though gas has proven harder to decarbonise. At the same time, emissions from the UK’s electricity sector have been falling for a decade, as more renewables come online.

Continuing a process which began at Budget 2016, the Chancellor said the electricity rate will be lowered and the gas rate will increase in both of the next two tax years, so that the gas rate reaches 60% of the electricity rate in 2021/ 2022.

The government is raising the rate on gas to £0.00568/kWh in 2022-23 and to £0.00672/kWh in 2023-24 whilst freezing the rates on electricity.

The changes to the reduced rates seek to limit the impact on Climate Change Agreements scheme participants to a Retail Prices Index increase only.

Energy-intensive sectors will be provided with dedicated support to help them deal with the implications of these changes, Sunak said.

CCL was introduced in 2001 and is a UK-wide tax on electricity, gas, LPG and solid fuels supplied to businesses and public sector consumers.

The main rates on these commodities are paid to HMRC by energy suppliers who pass on the costs, through billing, to their non-domestic customers. The reduced rates available to Climate Change Agreements participants are expressed as a percentage of the full main rates.

Jayne Harrold, PwC’s UK environmental tax leader, said: ‘There was not really an increase in pollution taxes as the Chancellor suggested with the climate change levy (CCL) changes announced. 

‘In fact, freezing CCL rates on electricity to level up the gas rate faster based on carbon emissions will reduce the amount of pollution tax applied. 

‘Extending climate change agreements for two years is equally minor good news for energy intensive businesses who get significant CCL reliefs.’