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Are 'green taxes' to blame for energy prices rises?

When British Gas, the UK's largest utility company, announced a 12.5% rise in electricity prices at the start of August2017, Iain Conn, chief executive of parent company Centrica, put the blame largely on increases in 'environmental and policy costs, feed-in tariffs, the cost of ... the smart meter programme, carbon pricing strategies'. Some newspapers were quick to echo this; for example, The Daily Telegraph ran a front-page story under the heading 'Green tax adds £150 to home energy bill'. In an editorial, the Scottish Daily Mail (2/08/17) claimed that 'consumers are paying a heavy price for the 'green' levies imposed by politicians over the years'.

The cost of modernising the grid infrastructure, including the rollout of smart meters, adds around £15
to the average electricity bill. This will yield efficiency savings in the future.

Forensic analysissmart meter

So is this true? Or is it another example of the old tabloid reporter's adage 'Never let the facts stand in the way of a good story'? The UK-based website Carbon Brief provides a forensic analysis of the story, and shows that the Telegraph's alarmist headline just doesn't stack up. Indeed, it is hard to see where the '£150' figure comes from, as it seems at odds with Centrica's own figures, which themselves are contradictory and confusing.

Independent analysis by the Committee on Climate Change (CCC) published in March 2017 showed that 'low-carbon policies accounted for just over £100 [i.e. 9%] of the typical 2016 [dual-fuel] bill of around £1160. The majority of the typical bill resulted from wholesale energy, transmission and distribution costs, which are unrelated to the government's low-carbon policies.'

Perjorative label

Carbon Brief assumes that to get to the inflated figure of £150 the Telegraph lumped in the cost of social policies, namely the Warm Home Discount and ECO programme of energy efficiency to tackle fuel poverty, and included these under the perjorative label 'green taxes'.

The CCC analysis reported that 'from 2016 to 2017 increased costs of low-carbon policies added around 4% to electricity costs and nothing to gas'.

The bigger picture

Only when taking a longer view does the true story emerge, which is that household energy costs have fallen over the last 10 years as a result of improvements in energy efficiency, funded in part through levies on electricity bills. As the CCC points out:

  • 'Typical dual-fuel housholds...paid (in real terms) £115 less per year for their energy in 2016 than in 2008'.
  • 'Improvements in energy efficiency have saved the typical household around £290 per year since 2008 as demand for electricity and gas has reduced.' Adrian Gault, acting cheif executive of the CCC, says that 'Although green measures contributed around £9 a month to the typical 'dual fuel' energy bill in 2016, energy efficiency improvements to lights, boilers and appliances saved around £20 a month as a result of reduced energy demand.'

This of course sits alongside the government's legal commitments to reducing carbon emissions. See Climate change.