Post: Budget 2025: Key climate and energy announcements

Budget 2025: Key climate and energy announcements

On 26 November, UK Chancellor Rachel Reeves unveiled the 2025 Budget.

In the Commons speech Reeves said growth is the “engine that carries every one of our ambitions forward”. The Budget document notes that “delivering more secure, clean and cheaper energy is central to sustainable economic growth over the long term and the modern Industrial Strategy is committed to capturing the opportunities, jobs and investment that the transition to clean power and net zero presents, doubling down on the UK’s strengths and removing barriers to investment”.

Key measures announced included:

• The government is not continuing the funding of the Energy Company Obligation on bills after March 2026 and is announcing £1.5B of new funding to support households facing fuel poverty. The government will also fund 75% of the cost of the Renewables Obligation to households in 2026-27, 2027-28 and 2028-29
• The government is introducing Electric Vehicle Excise Duty (eVED), a new mileage charge for electric and plug-in hybrid cars, with effect from April 2028. Drivers will pay on a per-mile basis alongside their existing Vehicle Excise Duty. Electric cars will pay half the equivalent fuel duty rate for petrol and diesel cars, and plug-in hybrid cars will pay a reduced rate equivalent to half of the electric car rate. The government has published a consultation which provides further detail on how eVED will work and seeks views on its implementation. The consultation will remain open until 18 March 2026
• The Budget noted that the Electric Car Grant, launched in July this year, has already helped over 35,000 drivers to make the switch to an EV by giving up to £3,750 off eligible EV models. The government is boosting the programme with an additional £1.3B of funding and extending it to 2029‑30. The threshold at which motorists with new EVs have to pay the VED Expensive Car Supplement is also increasing from £40,000 to £50,000, with effect from 1 April 2026
• An additional £100M is also to be invested in EV charging infrastructure, building on the £400M of funding announced at Spending Review 2025. This includes funding to support the installation of home and workplace chargepoints. £100M of resource funding will be provided for local authorities and public bodies to support the training and deployment of specialist staff, accelerating the rollout of public chargepoints
• A consultation will be launched on permitted development rights for cross‑pavement EV charging on top of the £25M scheme announced in July to support local authorities to provide discreet cross-pavement channel charging solutions for residents
• 10-year 100% business rates relief will be introduced for eligible EV chargepoints and EV-only forecourts, to ensure that they face no business rates liability. The 100% first year allowances (FYAs) for zero emission cars and EV chargepoint infrastructure will also be extended by a further year
• The government will review the cost of public EV charging, looking at the impact of energy prices, wider cost contributors, and options for lowering these costs for consumers. The review will start in Q1 2026 and report by Q3 2026
• The British Industry Supercharger cuts electricity costs for around 550 energy intensive businesses, and the government recently confirmed an uplift in relief through its Network Charging Compensation Scheme from 60% to 90%. From 2027, the British Industrial Competitiveness Scheme will reduce electricity costs by c.£35-40/MWh and support thousands of businesses
• Earlier this month, the government announced that Wylfa in Anglesey, North Wales, will host the UK’s first small modular nuclear reactor project. The government will continue to identify potential sites for large-scale nuclear power. This builds on the modern Industrial Strategy and funding commitments at the Spending Review, including for Sizewell C. The government will also legislate to give the Office of Nuclear Regulation the ability to consider overall strategic factors such as energy and national security imperatives in the delivery of its statutory purposes. The government has updated the Green Financing Framework to add nuclear energy for power generation to the list of policies eligible to be funded by green gilts and retail Green Savings Bonds
• Noting that connections to the grid remain one of the biggest blockers in delivering key growth projects across the economy. The government, alongside NESO and Ofgem, is going further to overhaul connection processes by: creating mechanisms to reallocate released capacity and reserve future capacity for strategically important demand projects; working with Ofgem to explore enhanced entry and membership requirements; reducing the time to power by exploring self-build for high voltage grid infrastructure and more flexible connections where possible; and removing speculative demand in the grid connection queue. The Department for Science, Innovation and Technology (DSIT) will set out a strategic plan for data centres to ensure only the most strategic and credible projects are taken forward
• The temporary Energy Profits Levy (EPL) will be replaced by the permanent Oil and Gas Profits Mechanism (OGPM). The OGPM will be a revenue-based mechanism which only operates in times of high prices and will replace the EPL when it ends in 2030, or earlier if the EPL price floor triggers. The rate will be 35% with thresholds of $90/ barrel (oil) and 90p/therm (gas)
• The main rates of Climate Change Levy (CCL) for gas, electricity and solid fuels will be uprated in line with RPI from 1 April 2027. The main rate for liquefied petroleum gas will continue to be frozen. The reduced rates will remain at an unchanged fixed percentage of the main rates. Electricity used in electrolysis to produce hydrogen and natural gas used as a source of CO2 in the production of sodium bicarbonate will be made exempt from CCL. Subject to parliamentary approval, these amendments will be in force by Spring 2026
• The government will freeze the Carbon Price Support rates in Great Britain at a level equivalent to £18 per tonne of CO2 in 2027-28
• The government will legislate in Finance Bill 2025-26 to introduce the Carbon Border Adjustment Mechanism (CBAM) from 1 January 2027. The inclusion of indirect emissions within scope of the CBAM will be delayed until 2029 at the earliest