Green costs on energy bills 101

Tuesday 28 February 2012

Robin Webster

How much of your energy bill pays for government ‘green’ policies aiming to reduce energy waste and cut carbon emissions? You could be forgiven for being a little confused, given that the media coverage of the issue has been conflicting and at times misleading.

There’s a smorgasbord of numbers out there which are often taken from deep within technical-looking documents from organisations like UK energy regulator Ofgem which, if we’re honest, is good at knowing a lot about the mechanisms of the electricity market, but not great at having a easy to use website.

In practice there are two main bodies who assess these costs – The Department of Energy and Climate Change (DECC) and Ofgem. Reports in the media and produced by other groups are usually either based on these figures – or alternative interpretations of them.

So here’s a cut-out-and-keep primer on what the numbers are and where they come from, as clear as we can make it.

DECC Figures

Probably the most quoted figures – those from DECC – estimate that energy and climate change policies currently make up around 7% (£89) of the average household energy bill of £1,260. This breaks down to 4% of gas bills and 10% of electricity bills.

DECC’s breakdown of costs per policy looks like this – (and no, we’re not sure why ‘Better Billing’ is on the list): 

Source: Table D1, p.62,  DECC 2011. 

Ofgem

Ofgem comes to similar conclusions – that environmental measures account for about 7% of current domestic energy bills.

The most succinct and up-to-date source is the recent Ofgem report Why are energy prices rising?, which estimates:

“Government environmental and energy efficiency programmes add around £100 on to the average energy bill of £1,300.”

The figures differ slightly because Ofgem and DECC use slightly different underlying assumptions about what an average bill is and how to measure energy prices, but in practice it makes only a limited difference.

A note on energy efficiency

Some government policies are intended to help householders save energy. These include the Community Energy Saving Programme, the Carbon Emissions Reductions Target and the EU’s Products Policy, which is intended to increase the efficiency of appliances.

In theory, these measures should help consumers reduce their energy consumption, leading to lower bills. Because of this, DECC figures consider the cumulative impact of green policy measures – so they take into account that policies reduce energy use, cutting bills.

On this basis, DECC argues that in 2011 energy and climate change policies added just £19, or 2% to the average household energy bill.

Whether you agree with these numbers or not will depend on to what extent you buy the government’s argument that its policies are reducing energy use.

It’s obviously more complicated to calculate this kind of figure than it is to just tot up how much each of the programmes costs – you really need to be able to assess what impact the policies are actually having.

Read more…

Although we’re not (yet) getting paper bills which show the breakdown of what you pay, it is now, fortunately, easier to find the information. Since the media blitz on this topic got going last year, various official bodies have responded by laying out their research more clearly.

If you want to go further into the numbers, there are now some helpful documents you can dig into:

1. Ofgem’s report from October of last year: Why are energy bills rising?
2. DECC’s report, released in November 2011: The estimated impacts of energy and climate change policies on energy prices and bills
3. The Climate Change Committee’s report, released in December: Household energy bills – impacts of meeting carbon budgets

That’s it! Not the most exciting blog post, but hopefully a useful one.

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