Cleaner energy

Whilst the removal of the 5% VAT charge on fuel bills will come as a welcome relief in homes across the UK, it’s unlikely to encourage anyone to switch to cleaner energy.

That’s because the cut will apply to all forms of fuel, so there is no incentive to switch from fossil fuel to green energy.

In fact, the Government’s current energy policy is so heavily weighted in favour of fossil fuel power – and in particular household gas boilers – that it actually provides substantial financial incentives for households NOT to make the switch.

If Government does not act soon it will create the latest case study for the law of unintended consequences, the litany of well-meaning policy ideas that actually achieved the opposite of what was intended.

In the days of the Raj, British officials, concerned at the number of venomous snakes in Delhi, are said to have issued an edict offering a reward for every dead cobra. Enterprising locals began breeding the snakes then killing them to claim the bounty. When officials became aware of the scam they halted the offer. As a result, the worthless snakes were released from captivity and the Cobra effect became a term used for an incentive that makes the problem worse.

Environmental intervention provides numerous such examples dating as far back as 1665 when dogs and cats were ordered to be killed for fear they would spread disease during the Great Plague of London. Had they been left alone they would have helped reduce the rats that actually carried the fleas that transmitted the disease.

And so we come to the Government’s bizarre stance on household energy.

Taxes including Feed-In Tariffs, Renewable Obligation Certificates and Contracts for Difference are currently imposed on electricity bills to fund subsidies for producing green energy, for example from wind farms. However, these tariffs are not applied to domestic gas bills, and so this policy effectively adds over £300 a year to the cost of electricity compared to gas.

The unintended consequence of the Government’s green tariff is that it deters households from switching from fossil fuels to green energy sources powered by electricity – such as heat pumps.

Research by Public First, commissioned by five utility companies, points out that many of the severest cases of fuel poverty suffered in the UK are amongst those who rely on direct electric heating. Their poverty will be reduced if green taxes on electricity are reduced.

The Government recognises that in order to meet its zero carbon targets it will need to incentivise the switch by households from gas to sustainable sources, including heat pumps. But, as the Public First report concludes: “Far from putting a price on pollution, we are actively encouraging the use of fossil fuels.”

The study outlines how the Government can help all UK households transition to green energy, a vital step if it is to meet its zero carbon commitments