Ovo, Eon, EDF, British Gas and Scottish Power back the introduction of a Carbon Tax

A new report commissioned by some of the UK’s largest energy suppliers has backed calls for the introduction for a UK carbon tax to shift expensive policy costs away from energy bills and aid with the huge task of decarbonising the nation’s heating systems.

Current framework needs to change

The Options for Energy Bill Reform report produced by consultancy firm Public First examined the ways in which heat decarbonisation can be incentivised and highlighted how the framework currently in place favours and even actively encourages the use of fossil fuels.

If the UK is to hit the government’s ambitious green targets, then homeowners will need support to replace their current heating systems.

Data shows that 1.6 million new gas boilers are installed across the UK every year. In comparison just 30,000 heat pumps are installed.

Under the government’s 10-point plan released last year 600,000 heat pumps will need to be installed annually by 2028.

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More focus on Gas

Currently the bulk of the clean energy policy costs such as the Renewable Obligations certificates, feed-in-tariffs and contracts for difference are all imposed on electricity bills but not on gas.

With heating being one of the biggest creators of carbon emissions the report suggests that policy should be changed to support homeowners seeking to introduce cleaner heating methods.  Those that do adopt air source heat pumps will have to pay £305 more in energy bills than those with a gas boiler highlighting the need to make changes and add incentives.

Eon UK chief executive Michael Lewis said: “Britain has a once-in-a-generation opportunity to make a positive change, reduce emissions and kickstart a new industry, but unless we get the economics right, we’ll never get the delivery right.

“To meet the prime minister’s 600,000-a-year heat pump target in just seven years means we need to start making energy bills fairer for everyone now – making sure the right choice is also the cheaper choice.

“Public First’s policy recommendation squares that circle and protects homeowners and government’s finances into the bargain, so for me it’s a no brainer for the chancellor to include these proposals in the next Budget update.”

Also read: Is ‘Green Energy’ really good for the environment?

Need to catch up

The report also highlights how nations such as Germany and France are ahead of the UK when in comes to the rollout of heat pumps even as their targets are far below the UKs.

France, for example has a much higher uptake of heat pumps as it also levies carbon charges across fossil fuels, including gas.

The energy suppliers, Ovo, EDF, Eon, British Gas and Scottish Power have called for rebalancing costs between gas and electricity and recommends the introduction of a carbon tax.

In their outline, the tax would be levied across electricity and gas, starting at £54/tCO2e at a consistently increasing rate up to £75/tCO2e in 2030. With electricity assumed to become increasingly generated from renewable sources, gas would then see an increasing proportion of the carbon charge.

In response to the report Adrian Letts, chief executive of retail at Ovo Energy, said: “Like most energy suppliers, we sell gas to our customers. We know over time this needs to change. We are moving from a pure energy supplier to becoming a decarbonisation partner to support our members’ transition to low carbon heat in their homes. However, we cannot do it alone.

“This report shows that the amount of additional policy costs loaded onto electricity bills, makes alternatives to cheap gas boilers such as a heat pump far more expensive. Moving the policy costs onto government expenditure and then introducing a carbon tax levied across electricity and gas would be the fairest and most effective way to decarbonise heating.”

The next challenge will be for energy suppliers and the government to win public support for the introduction of such a tax.

With many people currently struggling financially with the fallout of the Covid-19 pandemic many will likely not be pleased to hear that they could be hit by more taxation over the government’s going green policy.

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Further Reading

Energy Suppliers owe £1.8 billion to 13 million households says new Uswitch report

Covid-19 has changed the relationship between Energy Suppliers and their customers forever

Five challenger energy suppliers required to participate in Ofgem’s ECO3 Energy Efficiency Scheme after hitting customer threshold

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