Renewable energy policy costs households an extra £400 a year

Published on Wednesday, 18 January 2012 12:07
Posted by Scott Buckler

Unnecessary and hugely expensive renewable energy policies will cost the average household in Britain a total of £400 a year by 2020 – the equivalent to 2.5p on VAT – according to a new report by leading think tank, Policy Exchange

The £400 is not the total cost of climate policy but the additional cost imposed because the Government subsidises expensive renewables such as offshore wind rather than cheaper ways of reducing carbon emissions.The report – The full cost to households of renewable energy policies – accuses the Government of not clearly presenting the full impacts and costs of climate and renewable energy policies on households, and outlines how the UK could meet its carbon targets while saving households hundreds of pounds.

In the recent Annual Energy Policy Statement, Chris Huhne made much of a statistic that current climate and renewable energy policies would reduce households’ average energy bills by 7% by 2020. This headline message is misleading as it fails to make clear:

The costs of policies paid for through general taxation, rather than through energy bills. The Government decided to pay for the Renewable Heat Incentive, for example, through general taxation rather than energy bills. This decision reduces the Government’s energy bill projections, but does not reduce the overall cost on a household.

Higher prices for more energy efficient products. The Government projects that its drive for more energy efficient products will substantially reduce energy consumption. However, increasing energy efficiency standards will usually cost the manufacturers of the products more. Such costs do not show up in the Government’s energy bill projections, but do increase the prices households pay to buy their energy-using products.
The knock-on costs from businesses’ higher energy bills. Businesses pay most of the costs of climate and renewable policies through high energy prices. However, most of these costs are ultimately passed on to households.

That most households – those with less scope for improving energy efficiency - will see higher energy bills as a result of Government policies. The Government’s headline message about average bills disguises that around two-thirds of households will in fact be worse off.
The report highlights how some climate policies deliver much poorer value for money than others – most notably expensive renewable energy deployment subsidies that have minimal impact on reducing carbon emissions by 2020. It estimates that renewable energy deployment subsidies will cost £400 a year by 2020 to an average UK household – once all the impacts are included.

While the report recognises that renewable energy technologies will play a role in decarbonising the UK economy, it criticises the Government’s decision to ‘hand pick’ specific technologies such as expensive offshore wind in order to meet the EU’s 2020 Renewable Energy Target. It argues that the Renewable Energy Target should be scrapped.

Simon Less, Head of Environment and Energy at Policy Exchange, “We can go greener, cheaper. Unnecessarily expensive policies which put additional strain on squeezed household budgets will not help win the sustained public support needed to address climate change.

“While renewable energy will have a key role to play in emissions reduction, we need an informed debate about the value for money of existing renewable energy subsidies and about how best to use the money available for climate action. Greater transparency is needed about the full impact of policies on households in order to build public support for climate action.”


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