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Green Energy Subsidies Will Rise To 20% Of Household Energy Bills

Consumers can expect their household energy bills to increase by £100 a year over the current decade to support carbon-reduction commitments, according to a government-sponsored report. Charges to support the reduction in carbon emissions are expected to rise from around 8 per cent of energy bills to nearly 20 per cent over the current decade.  GWPF warned that the government faced “a political backlash” if it accepted higher subsidies for high-cost alternative forms of energy generation.

But the study, produced by the Committee on Climate Change, argues that the prospect of more stable gas prices and improvements in the efficiency of domestic appliances could see household energy bills hold steady or rise more slowly by 2020 after several years of steep inflation.

Lord Adair Turner, chair of the CCC, also hit out at claims that UK investment in low-carbon power capacity could drive up household energy bills from current levels of about £1,000 to as high as £3,000 over the next decade.

“We found that bills have increased primarily in response to increased wholesale gas costs and not due to environmental policies,” said Lord Turner. “Over the next decade, we anticipate a rise of around £100 in the average bill as a result of investment in low-carbon power capacity, which will benefit the UK in the long run. And if we introduce new policies to stimulate energy efficiency improvement then bills in 2020 could broadly be contained at current levels.”

The report by the CCC, set up under the Climate Change Act of 2008, calculates that the average dual-fuel bill has increased by 75 per cent from £605 in 2004 to £1,060 in 2010, compared with general price inflation of 16 per cent over the same period.

But the bulk of that increase was caused by increases in wholesale gas prices rather than the imposition of environmental charges, it said on Wednesday.

Charges to support the reduction in carbon emissions accounted for about £85 per household, or 8 per cent, of the average dual-fuel bill of £1,060 last year.

More than half was spent on funding energy efficiency in homes, through schemes such as subsidising the installation of loft and cavity wall insulation for old age pensioners and other disadvantaged groups.

The report anticipates a large expansion in the funding of wind, nuclear, tidal and other low-carbon energy generation projects through domestic bills.

“There’s been a lot of debate and it’s become quite politically charged about energy bills,” said David Kennedy, CCC chief executive. But he argued that the doubling of charges to achieve carbon reduction targets could be mitigated by lower domestic consumption and a slackening of wholesale gas price inflation.

On the eve of the report’s publication The Global Warming Policy Foundation, a think-tank sceptical of climate change policy backed by former chancellor Nigel Lawson, attacked the need for an increased consumer subsidy of low-carbon investments.

Benny Peiser, director of the [GWPF] argued that the government faced “a political backlash” if it accepted higher subsidies for high-cost alternative forms of energy generation.

Financial Times, 14 December 2011