Are ‘green taxes’ really to blame for rising energy bills?

Trevor Kavanagh rolls out a familiar trope in today's Sun: that so-called green taxes are to blame for rising energy bills. They aren't.

Trevor Kavanagh

According to Trevor Kavanagh’s op-ed in today’s Sun, global warming means little more than wearing “shirt sleeves or a light pullover” in October.

“If this is global warming, let’s have more of it,” Kavanagh adds.

Putting aside for a minute the fact that climate change will mean a great deal more than sunloungers and mojitos for those living in more precarious parts of the world than wealthy Sun op-ed writers, Kavanagh also rolls out a familiar trope: that so-called green taxes are to blame for rising energy bills.

“As energy supremo under Gordon Brown, ‘Red Ed’ lumbered us with green taxes forcing energy prices into the stratosphere for years,” he writes.

In reality, however, green policies account for just a fraction of the recent spike in energy bills; and even then there is evidence that over the long-term green measures will actually save money by reducing Britain’s reliance on gas and encouraging consumers to make their homes more energy efficient.

According to a report from the Department of Energy and Climate Change from March of this year, average household dual fuel bills have increased by around 13 per cent in real terms between 2010 and 2012. It adds that the main drivers of the increase were:

  • Wholesale energy costs, estimated to have contributed at least 60 per cent of the increase in household energy bills over this period;
  • Network costs, supplier operating costs and margins, estimated to have contributed around 25 per cent of the increase
  • The costs of energy and climate change policies estimated to have contributed around 15 per cent of the increase. This accounts for the cost of the Warm Home Discount, but not the rebates it delivers to eligible consumers. This also does not take account of the energy bills savings from energy efficiency policies.

Average bills

In the short-term there will indeed be a small increase in annual bills due to green policies. However, this is a fraction of the total cost of the average bill and can easily be ofset by measures which make homes more energy efficient. The Committee on Climate Change (CCC) says that measures such as boiler replacement, insulation measures and efficient appliances would be “worth around £145 per household in 2020, with more savings potentially available in the 2020s”.

This compares with Npower’s own estimate that bills will increase by £80 (not the £120 a year claimed by Kavanagh) by 2020 as a result of low carbon policies – less than the potential savings from energy efficiency measures.

Wholesale gas

On the other hand, the above chart, detailing the trend in wholesale gas prices since 2005, shows a far more important reason that bills are rising: a steady increase in the wholesale price of gas from spring 2007. This has far more to do with energy prices going “into the stratosphere for years”, as Kavanagh puts it, than green measures inctroduced by Ed Miliband when he was secretary of state for energy and climate change.

And yet people like Kavanagh want the government to rely on gas more than we do already through not investing in green alternatives!

As we recently pointed out, relying on gas and building more gas power stations will actually cost the economy a further £312 million – and up to £478 million if gas prices are higher than expected.

As Will Straw of IPPR puts it, “If gas prices are at the upper bound of expectations, the saving from going green could be £249m.”

8 Responses to “Are ‘green taxes’ really to blame for rising energy bills?”

  1. itdoesntaddup

    Under Ed Miliband’s 2010 Energy Act, OFGEM is required to hide the full impact of green energy from consumers, and DECC does likewise. This is done by careful hidden assumptions in definitions. Let’s start with the fact that consumers pay for the energy supplied to non-domestic sectors of the economy via the prices they pay for the the goods and services they buy. Therefore, the real impact of energy measures is about three times the impact on their bills, as the domestic sector only accounts for roughly a third of power consumption – and they pay 20% VAT, not 5% on many of those purchases.

    The increase in National Grid charges is entirely related to the extra investment required to connect wind farms etc., and to provide some attempt at improving resilience against consequent grid instability. This is easy to see if you examine their accounts down the years.

    As to the claim that underlying commodity cost has increased by 60%, I’m not really sure how this stacks up. Here’s what has happened to McCloskey’s CIF NWE coal prices in £/tonne (converted to sterling using annual average £/$ rates from the BoE):

    2008
    80.54

    2009
    45.28

    2010
    59.89

    2011
    75.83

    2012
    58.37

    The current price is around £50/tonne. Coal is the main source of generation still.

    The picture for gas using UK NBP Heren prices in p/therm is:

    2008
    58.86

    2009
    31.08

    2010
    42.45

    2011
    56.43

    2012
    59.72

    Gas prices are strongly seasonal, but the futures markets actually show lower prices are expected in later years (doubtless the fact that Miliband is banking on for his price freeze promise) – maybe on the hope of rising supplies of shale gas.

    Of course, there have been big increases in what is paid for wind power with its ROC benefits adding around £3bn to bills directly (and yet more because it increases costs for other forms of generation that have to be backed out to accommodate it).

    By all means let’s have the debate, but we need to have much more transparency on the facts behind it. The reality is that it isn’t so much the identified taxes so much as the consequences of the policies that are adding to our bills.

  2. frank100

    reply to itdoesnotaddup. Phowee!. Your account does not take into account the costs of increased environmental damage as the climate warms. For instance, increased rainfall results in increased flooding and if your home has been flooded you would know the financial cost, the emotional cost of increased worry and the difficulty of selling when you need to move for employment reasons. Also, increased storm damage etc etc.

  3. itdoesntaddup

    One other point:

    The current dispute at Ineos/Petrochina Grangemouth is over a sum that could probably be financed quite easily but for the green taxes/carbon floor price and high energy bills the plants have to pay that make them uncompetitive. The consequences for Scotland if the complex closes, and the country is forced to export its crude and NGLs for processing elsewhere, only to import products from such sources as Russia and Libya, would be yet higher fuel prices and much reduced security of supply. This despite supplies direct from the Forties system by pipeline that give a supply cost advantage over almost every refinery in Europe.

    Of course, the Murphy refinery at Milford Haven is for sale and likely closure, and at least one other refinery is under threat. So it won’t be just Scotland where pump prices rise because we have to import more and more of our fuel, rather than refine it ourselves.

    http://www.unitetheunion.org/uploaded/documents/OilRefineryBrochure11-4935.pdf

  4. itdoesntaddup

    One other point:

    The current dispute at Ineos/Petrochina Grangemouth is over a sum that could probably be financed quite easily but for the green taxes/carbon floor price and high energy bills the plants have to pay that make them uncompetitive. The consequences for Scotland if the complex closes, and the country is forced to export its crude and NGLs for processing elsewhere, only to import products from such sources as Russia and Libya, would be yet higher fuel prices and much reduced security of supply. This despite supplies direct from the Forties system by pipeline that give a supply cost advantage over almost every refinery in Europe.

    Of course, the Murphy refinery at Milford Haven is for sale and likely closure, and at least one other refinery is under threat. So it won’t be just Scotland where pump prices rise because we have to import more and more of our fuel, rather than refine it ourselves.

    http://www.unitetheunion.org/uploaded/documents/OilRefineryBrochure11-4935.pdf

  5. itdoesntaddup

    One other point:

    The current dispute at Ineos/Petrochina Grangemouth is over a sum that could probably be financed quite easily but for the green taxes/carbon floor price and high energy bills the plants have to pay that make them uncompetitive. The consequences for Scotland if the complex closes, and the country is forced to export its crude and NGLs for processing elsewhere, only to import products from such sources as Russia and Libya, would be yet higher fuel prices and much reduced security of supply. This despite supplies direct from the Forties system by pipeline that give a supply cost advantage over almost every refinery in Europe.

    Of course, the Murphy refinery at Milford Haven is for sale and likely closure, and at least one other refinery is under threat. So it won’t be just Scotland where pump prices rise because we have to import more and more of our fuel, rather than refine it ourselves.

    http://www.unitetheunion.org/uploaded/documents/OilRefineryBrochure11-4935.pdf

  6. itdoesntaddup

    Perhaps you can explain how much storm damage would be caused by the UK’s 1.5% and falling share of global CO2 emissions – a share that has already fallen from 6% since 1965 – which is a record that no other country can begin to match. I think you should send the bill for storms to the Chinese, who increase their emissions by more than the UK total every year, and already account for 27% of the global total.

  7. Oscar Blanco

    Thanks to energy deregulation, you can save money on your energy bill. You have the power to choose your gas and electricity provider. North American Power offers very competitive rates and gives a $50-$100 Visa gift card as a new customer. Also,the company will pay you to refer people. no contracts, no fees, just savings! Check it out for yourself: http://napower.com/611058

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