Under leaked plans, the government could act to reduce electricity bills to encourage households to install low-carbon heating technologies like heat pumps.
Domestic heating accounts for 14% of the UK’s carbon emissions, with 85% of homes using natural gas boilers. Replacing these boilers with low-carbon alternatives is essential for the UK’s decarbonisation goals.
However, the task is gargantuan: more than 23 million homes will need to have heat pumps installed, along with energy efficiency measures like insulation.
The government wants to see 600,000 gas boilers replaced by heat pumps every year from 2028 and the sale of fossil fuel boilers ended by 2035. All new homes will be required to have low-carbon heating systems, such as air or ground source heat pumps, by 2025.
However, the widespread adoption of low-carbon heating technologies has been stymied by the purchase cost of heat pumps and by the higher comparative cost of electricity compared to natural gas. Households that switch to heat pumps pay £408 more in energy bills compared to those running gas boilers.
Around a quarter of consumer’s electricity bills cover taxes suppliers pay to support renewable generators and help low-income households. The government’s upcoming Heat and Buildings Strategy is expected to remove some of these costs from electricity bills to make electric heat not only economically viable but cheaper than gas boilers.
The government will run a consultation about removing as much as 23% of these policy costs from electricity bills, and how the Treasury will recoup the £10 billion they bring in. Suggestions have included transferring some of the tax burden to gas bills or levying a general tax.
The government is already planning to levy a tax on gas suppliers to fund the construction of ‘green gas’ biomethane plants which produce a low-carbon alternative to natural gas.
Transferring some taxes from electricity suppliers to gas suppliers would increase the annual fuel costs of homes running gas boilers by around £70, according to an analysis by consultancy Public First. However, it would make having an electric heat pump £200 cheaper than running a gas boiler.
Removing the tax burden on electricity would also benefit rural households that aren’t connected to the gas grid and already rely on electricity from heating their homes. But it could increase energy bills for households already in fuel poverty and those that can’t afford to install heat pumps.
Juliet Phillips, a senior analyst at think tank E3G, which researches the political economy of climate change, said: “The Government will need to protect low income and vulnerable households against short-term shocks, such as changes in fuel prices.”
The report by Public First, commissioned by energy suppliers EDF, E.ON, OVO, Scottish Power and British Gas owner Centrica, calls for a carbon tax on both gas and electricity. It says that a tax on energy bills may annoy consumers but argues that carbon taxes would increase bills less than simply shifting the tax burden to gas.
Rachel Wolf, a co-founder of Public First and co-author of the 2019 Conservative Party manifesto, said: “Unless the Government changes the running costs of heating your homes, they’re never going to meet their net zero target.”
“You have many households facing enormous economic risk, being asked to change the way they heat homes, and understandably very worried about bills,” she said.
A spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS) said: “Our Heat and Buildings Strategy will be published in due course. While we do not comment on speculation around the content of forthcoming publications, we are clear that this and our wider efforts to tackle climate change will go with the grain of consumer behaviour, and ensure measures are fair and affordable for consumers.”
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