How much do 'green taxes' add to energy bills?

Published: 23rd Oct 2013

David Cameron: "We need to roll back some of the green regulations and charges that are putting up bills. We all know who put them in place."

Ed Miliband:"60% of green taxes were introduced by him [Energy Secretary Ed Davey]."

David Cameron: [later] "The fact is that on our energy bills is £112 of green taxes and green regulations"

Prime Minister's Questions, 23 October 2013

Energy bills were at the centre of attention yet again at today's Prime Minister's Questions, following former Prime Minister John Major's call for a windfall tax on energy companies' profits yesterday.

The Prime Minister has previously ridiculed Labour's proposal to freeze energy bills if it won power in 2015, stating: "there is one thing that Governments cannot control, and that is the international wholesale price of gas". Instead, today he focused on the role of 'green taxes' in rising energy bills, announcing a review of their impact.

How much of fuel bills are 'green taxes'?

The most comprehensive breakdown of the average household bill for both gas an electricity was put out by the Department for Energy and Climate Change (DECC) in March this year, although the estimates don't account for price rises announced and implemented since then.

Of the average bill of £1,267, it pinpoints £112 (9%) as the cost of "energy and climate change policies". Of the rise in energy bills from 2010 to 2012, these policies accounted for 15% of the increase. Importantly, it doesn't count certain discounts to fuel-poor customers and savings people will have made from having more energy efficient households as a result of some of these policies.

In fact, the government forecasts that energy bills will be £166 a year lower than they would otherwise have been as a result of its intervention, due to the monetary savings for households (although bills themselves will still be higher overall).

But it's not strictly accurate to call all these 'green taxes'. As some have pointed out on Twitter and elsewhere, not all energy and climate change policies can be described as 'green taxes'.

The DECC report lists the policies involved:

Renewables Obligation: (£30) introduced from 2002, requires energy companies to source increasing proportions of their energy from renewables.

EU Emissions Trading System: (£8) came into effect from 2005, allows companies to trade emissions allowances under a greenhouse emissions cap.

Feed-in-Tariffs: (£7) came into effect from April 2010, allows customers to make money from their own small-scale electricity generation.

Smart Meters and 'Better Billing': (£3) first put out to consultation by Labour, now being implemented under the Coalition. These give consumers more information about their own energy consumption and costs.

Warm Home Discount: (£11) introduced in 2011, requires energy suppliers to help fund fuel bill rebates for low income customers. The cost is an average across all households, although in practice it acts to subsidise those households which are eligible for it.

Energy Companies Obligation: (£47) introduced in 2013, requires energy companies to deliver energy efficient measures to poorer customers.

Carbon Price Floor: (£5) came into effect in April 2013, taxes fossil fuel emissions used to generate electricity.

It's clear that 'green taxes' is a bad definition of all these schemes put together. The Warm Home Discount is simply a scheme to help some people pay their energy bills rather than having any obvious 'green' intentions. The Energy Companies Obligation is also targeted at poorer consumers, although could be construed as 'green' given it helps them become more energy efficient.

Ed Miliband's claim that 60% of 'green taxes' were introduced under the Coalition is similarly flawed in its definition. To get this figure Labour adds together the costs of the Energy Companies Obligation, Carbon Price Floor, Warm Home Discount and Smart Metering.

It's correct that these account for 60% of all the energy and climate change policies that make up the £112 price tag, although properly understood these measures aren't just taxes, and aren't all 'green'.

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