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“Green Levies”? – Let’s call them Environmental and Social Levies

The National Audit Office (NAO) published a report today entitled ‘Infrastructure Investment: the impact on consumer bills‘. We’ll publish an overview document shortly as part of our Report Outline series.

In the meantime, we’ve no doubt the media will miss some key points and the Big Six Energy Companies PR machines will massage any information into another attack on Environmental and Social Levies – an attack that appears all too coordinated for our liking.

It’s worth highlighting a few common mistakes, truisms and myths:

1) Using the pejorative term ‘Green Levies’ is exactly what the Big Six energy companies want. By doing so you are acting as an unpaid PR spokesperson for them. The correct term is Environmental and Social Levies and the proportions are broken down like this:DECC Environmental and Social Levies

Energy Company Obligations (estimated 3.5% of 2020 bill) – this is designed to reduce the energy consumption of a range of homes including those that are particularly inefficient e.g. solid walled, those in poor areas, and those with vulnerable tenants.  The money is spent on tried and proven technologies. Potentially there could be improvements on how it is spent and how to reduce the administration costs but essentially a good idea.

Warm Home Discount for pensioners (0.83%) – If you are some inclined, please raise your head above the bar and argue that this is a terrible injustice to have on a bill.  The only improvement could potentially be to exclude those who don’t need it but that could cost more to administrate.

Renewable obligation for wind and other renewables (2.25%) – It’s interesting to revisit this in light of the guaranteed strike price offered to the companies of the next generations of nuclear plants…

Emissions Trading Scheme (0.6%) – A European-wide initiative that aims to promote low carbon technologies in energy and industry using a ‘cap and trade’ principle. The more low carbon technologies in the mix the lower this becomes.

Feed In Tariffs (0.5%) – Probably the most controversial as it has mainly benefited the wealthy and well ‘roofed’. Without the Government’s intervention to reduce the tariff rates last year, this could have been bigger. It seems that these are however protected from a potential cull – so Government are prepared to support investment in measured, metered outputs, but its political ‘open season’ on insulation which drives down our use of energy in the first place, meaning we need less renewable technology…..

Carbon Floor price (0.4%) This is a tax on fossil fuels used to generate electricity to support a floor price that encourages investment in low carbon technologies. Again the more low carbon technologies in the mix the lower this becomes.

Smart Metering (0.2%) – The introduction of better meters that will both allow the homeowner to better control their electricity use through have more information and also to allow the meter to be read without anyone having to visit.  Together they are expected to reduce electricity use by 2.8%.  the support of this initiative seems like a no-brainer?

2) ‘Environmental and Social Levies cost the consumer a large amount’.  The rush to get rid or these, or discuss getting rid of them is a combination of corporate deflection, political posturing and short-termism in lieu of realism and courage, and intellectual laziness driven by the soundbite age.

The truth is that DECC estimates that by 2020, its policies, with these levies at the heart of them will reduce household electricity bills by £100 compared to business as usual.  This is based on an 11 per cent increase in wholesale gas prices between 2011 and 2020.  If that is greater then the reduce would be greater.

3) The discussions does not go into any of the nuances of people and energy that should be key to making any decisions. Virtually nobody pays the ‘average’ bill. Furthermore the absolute amount you pay is irrelevant anyway, its whether it is fair, if you can afford it and if it can be reduced.  More relevant questions might be:

a) for which people is the absolute cost not affordable?  Why is that and what can be done about it where all previous schemes have largely failed?

b) what is the most effective way of reducing energy bills and fuel poverty over the long term? Lets get away from making policy on the hoof each time the heating season starts.

c) is the dominant players’ vertical integration of the energy industry offering good value to the consumer?  If not how can it be changed?

d) how could different tariff systems (e.g. rising block tariffs) help the situation? – much more on this to come soon.

We’re hoping to publish a piece soon based on their written responses to the Energy and Climate Change Committee so come back soon for that.