UK green energy surcharges set to switch from electric to gas bills

Green energy surcharges in the UK are expected to shift from electric to gas bills.

Ministers are set to outline plans to shift green surcharges from household electricity bills and on to gas bills in an attempt to nudge consumers towards lower-carbon alternatives.

The plans — to be announced next month — are a sign of the government’s desire not to let the current crisis over spiralling gas prices derail its longer-term goal of eliminating all net carbon emissions by 2050.

Citizens who heat their homes with electricity or drive electric cars would pay less, while those who continued to use gas boilers would pay more, under proposals that will be considered in the upcoming review.

Nearly one-fifth of the UK’s carbon footprint comes from heating homes and workplaces, which is heavily reliant on the use of gas. Gas, a pollutant, is currently taxed at a lower rate than electricity, which can be generated by renewable clean energy. Households currently pay an average green surcharge of £159 on their electricity bill.

Hannah Dillon, from the Zero Carbon Campaign, said addressing that imbalance was crucial. “We are calling for an end to the perversity of overtaxing electricity and undertaxing gas,” she said.

Ministers will insist that the policy will be phased in over a long period — up to a decade — and that the combined cost of gas and electricity bills will stay the same.

The Department of Business, Energy and Industrial Strategy said: “We want to encourage people to take up technologies such as heat pumps and electric vehicles. Affordability for consumers and taxpayers will be at the heart of our approach.”

But the announcement is likely to prove controversial at a time household and industrial gas bills — which rose by 10 per cent in April — are set to rise by 12 per cent in October. They are expected to climb even further in April next year due to the “price cap” set every six months by Ofgem, the energy regulator. The cap fluctuates to a large degree depending on wholesale energy prices, which have risen sharply this year.

Ministers hope tilting the balance of costs away from electricity towards gas will help nudge consumers to install electric heat pumps and buy electric cars, both of which are essential components of the government plan to achieve “net zero” carbon emissions by 2050. The government is set to ban the sale of new gas boilers by 2035.

Josh Buckland, at Flint Global, the consultancy, and a former energy adviser at the business department, said the government needed to introduce the switch fast enough to kickstart its plan to achieve the mass uptake of heat pumps by the end of the decade.

He added that a decision to start shifting levies away from electricity on to gas would send a major price signal to the market.

“If the government doesn’t achieve the switch over the course of the next five years or so, consumers won’t achieve big enough savings from switching from a gas boiler to an electric heat pump to convince them to make the upfront investment.”

The plan, dubbed the “energy affordability and fairness review”, will explore how to allocate energy costs to “incentivise cost-effective decarbonisation”. It will be published within weeks as part of the government’s much delayed strategy for decarbonising buildings called the Heat and Buildings Strategy.

The plan would see the introduction of new levies on gas bills designed to support net zero, such as a charge on gas bills to help fund the fledgling hydrogen industry.

It could also result in the transition of existing levies from electricity bills to gas bills, such as those used to subsidise low-carbon electricity.

That could include: subsidies for renewable energy, including “contracts for difference”, which guarantee the price of energy; protecting energy producers from volatile wholesale prices; and “feed-in tariffs”, payments to households that produce their own renewable electricity, which are paid for through a levy on energy bills.

Ministers will also argue that Britain will benefit from a more secure energy system as the nation comes to rely less on imported gas and more on domestically generated nuclear, solar and wind power.

Separately, the business department is expected to set out plans for the proceeds of the UK’s emissions trading system, a cap-and-trade scheme that requires polluters to buy allowances to cover their emissions. The government said last year that “a long-term decarbonisation funding stream” would come from “a share of the UK ETS”.

A Treasury review of where the costs of net zero will fall, also long delayed, is also expected to be published before the November COP26 climate conference the UK is playing host to in Glasgow.

Dillon said the government had to ensure there were “financial cushions” available to support those least able to pay as the changes designed to achieve net zero came into effect. “There’s a really big job to do to sell to the public the benefits that will come from the transition.”

Twice weekly newsletter

Energy is the world’s indispensable business and Energy Source is its newsletter. Every Tuesday and Thursday, direct to your inbox, Energy Source brings you essential news, forward-thinking analysis and insider intelligence. Sign up here.

Your email address will not be published. Required fields are marked *