The Carbon Price Support: driving households into fuel poverty
There is bloody-mindedness about introducing a policy that looks to hard-pressed consumers like a stealth tax and does nothing to further either climate or energy goals.
Britain is abundant in natural sources of energy, particularly wind, wave and tidal. As North Sea oil and gas production declines and we are driven to import more fuel to provide heating and electricity, we should absolutely be exploiting these resources so that we are less vulnerable to price shocks and more energy secure in the future.
A new tax called the Carbon Price Support (CPS), announced by the government in its recent Budget is intended to further this aim by propping up the price utilities companies pay to produce energy from fossil fuels. But it is a policy almost without virtues; it is unlikely to help drive investment into future sources of energy, will not cut carbon emissions and may in the meantime push up to 90,000 more households into fuel poverty.
The case for governments introducing floor price mechanisms into carbon trading schemes such as Europe’s ETS is a good one supported by plenty of academic literature. It helps guard against unpredictability which can undermine investors’ confidence. Also, having a higher price for carbon should help achieve emissions reduction targets both because investors put more money into low-carbon energy and because emitting carbon becomes more costly.
But the UK’s scheme, which is due to start next year, is unlikely to provide long term assurance as it will be open to annual parliamentary scrutiny and voting as part of the budget. Our report argues that investors may look at what happens to other taxes, such as fuel duty, and conclude that when the going gets tough for politicians, they may be tempted to reduce the rate, undermining carefully calibrated business decisions.
The CPS will not reduce emissions either. This is because the EU’s Emissions Trading Scheme is operated at the European level, where the quantity of emissions permits is determined. Introducing the CPS will increase the price of carbon in the UK only, but since the quantity of available permits throughout Europe will remain the same, utilities in other European countries will be have more permits at their disposal and will be able to purchase them more cheaply.
Back in the UK, utilities paying the tax will pass the costs of this through to consumers which could, according to the government’s own assessment, push as many as 90,000 more households into energy poverty by 2020. Currently there is a raft of policies designed to help us shift to more secure and low-carbon forms of energy and nearly all of them are paid for in this way by energy consumers. But while each of these carries a risk of increased fuel poverty, which needs addressing through other measures, such as better home insulation and bill rebates, the benefits are much clearer. The CPS will exacerbate fuel poverty for no tangible energy or climate change gain.
The budget is currently progressing through its House of Commons Committee stage and is likely to pass relatively unimpeded. The Labour opposition has tabled an amendment to the CPS that would compel the government to report on its impact on households vulnerable to fuel poverty and also to state what the money raised is used for.
Sadly, however, it seems we are stuck with the CPS and that it is destined to give a bad name by association to other, far more effective and purposeful policies.
Britain must secure as much energy as possible from its abundant natural resources. While this is important for climate reasons, it is equally important in order to ensure that energy remains affordable in future and that we don’t open ourselves up to shortages. But the necessary investments will have a cost that today’s politicians will have to explain clearly and continuously to voters.
There is then bloody-mindedness about introducing a policy that looks to hard-pressed consumers like a stealth tax and does nothing to further either climate or energy goals.