Many right-wing commentators are blaming “green taxes” or “environmental levies” for rising energy bills and increasing numbers of people living in fuel poverty in Britain. Their logic is, however, is fundamentally flawed and would appear to be based on anti-climate action sentiment rather than fact.
Energy bills are rocketing in the UK, and elsewhere in Europe, because of vast increases in the cost of wholesale gas. Prices have gone up by as much as nine times compared to the start of 2021, with a particularly steep rise in wholesale costs since Britain’s current price cap was decided in August. This means that consumers are going to suffer more pain in April, when the next increase in the cap is set to come into force. In November 2021, wholesale gas prices reached “unprecedented” levels, according to the energy regulator Ofgem. At the same time, policy support (those pesky “green taxes”) has remained stable.
Multiple factors are behind the gas price increases. Geopolitical pressures, including high demand for gas from Asia and low supply from Russia, as well as last year’s cold winter, which left gas stocks low, are among the main reasons.
Rather than raising the cost of bills, support for domestic renewable energy such as wind and solar power will reduce reliance on imported fossil gas and help stop such price increases happening in the future. The vast majority of homes in the UK (around 85 per cent) are still reliant on gas for heating, and around 40 per cent of Britain’s electricity generation comes from gas. Consumers are therefore clobbered with higher bills every time wholesale prices rise.
Other countries, such as Norway and Germany, have done a much better job of moving away from gas-fired heating and adopting electric heat pumps, meaning consumers are less exposed to price leaps.
Consumers in the UK are also reaping the consequences of a raft of energy companies going bust in recent months, according to Cornwall Insight. New suppliers have had to purchase gas and electricity on the wholesale market to meet demand from consumers forced to change supplier, and so pay the currently inflated prices.
It is also worth remembering that the environmental and social policy costs cited by certain commentators on Twitter and in the media this week also include funding for the Warm Home Discount scheme and energy efficiency measures, which are important ways of reducing bills for the most vulnerable.
And, to set the record straight on wind power, since the recent lack of it and the impact on bills has also exercised the renewables naysayers: yes, wind is variable and yes, prices will change depending on whether it is calm or blowing a gale. However, as Sam Hall, Director of the Conservative Environment Network, writes: “Price impacts from variable wind output typically last days, rather than months, and do not cause chronic price rises like we’re seeing now.”
Britain’s entire energy market needs modernising in order to reach net-zero emissions by 2050 in a way that ensures poorer households are not left to choose between heating their homes or eating.
Levies on energy bills need to reflect this reality. Gas bills, for example, are not subject to a carbon price even though gas produces climate change-inducing carbon dioxide. The government is also coming under increasing pressure to cut VAT on domestic energy bills, which stands at 5 per cent, to relieve some of the pressure. Spain has temporarily reduced VAT on energy bills from 21 per cent to 10 per cent for households with modest energy consumption.
The reality is that climate action and lower energy bills go hand-in-hand. With the right policies, the government can facilitate the move away from gas towards cleaner fuels and ensure that no one is left behind.