Proposals for alternative mechanisms for funding emissions reduction schemes

Annabel Andrews writes on the newpower website about a new study in the UK that shows that it would be more effective to pay for energy policy through taxation. What are your views?


Paying for energy policy through taxation would reduce energy bills for 70% of households, says UKERC

Some 70% of UK households would be better off if energy policy costs were removed from gas and electricity bills and applied according to household income, according to research published today by the UK Energy Research Centre.

In ‘Funding a Low Carbon Energy System: a fairer approach?’, researchers from the University of Leeds propose alternative mechanisms for funding emissions reduction schemes, suggesting ways to raise the necessary funds to address climate change, whilst also protecting fuel poor households.

Currently within the domestic sector, levies to recover the costs of energy policy are applied as a percentage of household energy bills. In 2016 these energy policy costs added 13% to the average household electricity and gas bills, adding £132 to the average yearly spend.

However, in the poorest homes, money spent on energy accounts for 10% of total spend, whereas for the richest households it accounts for just 3%. Applying energy costs on this spend therefore disproportionately penalises those that are most vulnerable to rising energy prices, UKERC said.

The research also compared the total amount of energy consumed by households with different income levels. The research highlights that in 2014, the richest 10% of households consumed almost three times as much energy as the poorest households.

Total energy consumption measures all of the energy used to provide households with the products they buy and services they access, and incorporates aspects such as recreation activities, travel and imported products. Energy for heating and power in our homes accounts for only 12% of total energy consumption, highlighting the significant difference in spending patterns between high and low income households.

An alternative approach would be to place policy costs on businesses, or fund the costs through general taxation, both of which would lower the burden on the poorest households. The general taxation approach would better align energy demand with policy costs, and would reduce costs for 70% of UK households.

John Barrett, co-director of UKERC, said: “It is essential that climate change policies do not cause further inequality by penalising families with the lowest energy consumption and who are most at risk of fuel poverty. Progressive energy policies should ensure that those with the highest energy demand and the means to afford it, pay for the solutions.”

Anne Owen, UKERC researcher, said: “Our work shows that once you consider the hidden energy in the manufacture of all the goods and services we buy, it is only fair that richer homes contribute more to energy policy costs. Low income households, who experience fuel poverty, could be exempt from these additional charges if we rethink how low carbon energy schemes are funded.”


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