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.

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.”

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