Review “Green Taxes” – Yes please!

Last week David Cameron announced that the Government is to review Green taxes asa way to get energy bills down.

This is a welcome step.  Though not because we are opposed to measures that help people in fuel poverty, reduce carbon releases or climate change.  We just think that some of this money could be much better spent.

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And while the government is looking at “green taxes” on energy bills, please break up the Big Six energy suppliers so that energy generation and energy supply are separated (read more about why we think energy suppliers should be split up)

What are the Green Taxes Cameron is referring to?

According to DECC approximately 9% of an average duel fuel energy bill is due to what are referred to as “Green taxes”.   As bills rise this is a significant cost to consumers.

Average composition of a Duel Fuel Bill in 2013

 

The Green taxes are composed of a number of very different items, and we agree that these should be reassessed.

The figure below shows the composition of the green taxes as a percentages.  The breakdown of the £112 cost is as follows:

  • £47 – the cost of the “Energy Companies Obligation” (ECO).  This was introduced in 2013 and requires energy suppliers to deliver energy efficiency measures to the poorest customers.
  • £30 – Renewables Obligation – introduced in 2002 this requires energy suppliers to source an increasing portion of their energy from renewable energy sources
  • £11 – Warm Home Discount.  Introduced in 2011 requires suppliers to help fund a fuel bill rebate for low income customers. Essentially this is a subsidy we all pay for the households that are eligible for the discount.  See  more information on eligibility for Warm Home Discount  (opens in a new window)
  • £8 EU Emissions Trading Scheme.  Introduced in 2005 this is an EU system that allows companies to trade emissions allowances under a greenhouse emissions cap.
  • £7 Feed-in-tariffs.  This came into effect in 2010 and is the cost for small-scale energy generation such as PV panels, wind turbines and other small scale electricity generation schemes
  • £3 Smart meters and better billing.  These are designed to give consumers better information about their own energy costs.  They should also enable faster and easier switching for consumers between different suppliers
  • £5 Carbon floor price.  This came into effect in April 2013 and is a tax on fossil fuel emissions to generate electricity.

Percentages composition of green taxes

So what’s the problem?

Fuel Poverty kills

  • 27,000 excess winter deaths
  • 21.5% estimated to be caused by cold homes
  • 5,800 deaths caused by cold homes
  • Mostly over 65s

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42% of the “green taxes” go on “ECO” – the Energy Company Obligation.  We believe this is an inefficient use of the cost on our bills.

Firstly, we want to be clear that we agree wholeheartedly with the principle of ECO – namely that we should be investing in making our homes warmer and cheaper to heat as well as reducing our carbon emissions. (Read our tips on saving energy)

What is ECO?

ECO is an energy efficiency programme that was introduced earlier this year (2013).  ECO places a legal obligation on the larger energy companies to deliver energy efficiency measures to domestic users with a particular focus on vulnerable consumer groups and hard-to-treat homes.  The government estimates that ECO will deliver £1.3 billion worth of energy efficiency measures per year.  You can read more about ECO here (opens in a new window)

What’s the matter with ECO?

Energy Suppliers do not have access to government statistics that identify the people who qualify for assistance under ECO and have reported that they find it difficult to identify the correct vulnerable people who qualify for the scheme.  One way suppliers could identify more people who qulaify for the scheme would be to try to boost the numbers of people they supply on prepayment meters – as this group pays the most for their energy and are more likely to be struggling with fuel poverty.

However when we, along with numerous other collective switching operations have approached suppliers with prepayment customers we have had no offers of discounts for this group.  (Nor has anyone else that we know of! As we are committed to helping people in fuel poverty, we gave cashback on any commissions we recieved so that we could offer them a discount).

So energy suppliers have difficulty finding customers who qualify for ECO (but don’t want lots of new prepayment customers)

The problems with ECO continue because even if energy suppliers can identify the people who qualify for the scheme, the majority of consumers do not trust them to give good advice.

This is not rocket science and these same issues dogged the two previous schemes that ECO replaced.   Numerous studies have reported that people do not trust energy suppliers to give them impartial advice (the most recent was an IPSOS  Mori Survey for the Energy Savings Trust earlier in 2013 where 68% of respondents said that the believe energy companies are only interested in making money – not helping them.)

Is that all? – what about the carbon floor price taxes?

These taxes, though they are called carbon taxes they go straight into the treasury.  These taxes should be spent on making our houses more energy efficient. See the EnergyBillRevolution for more on a campaign (which we support) calling for warm homes and lower energy bills.

The Warm Home Discount

This is a support mechanism for the most vulnerable people – as such it would be much fairer to pay for it from general taxation.  In theory our taxation system would allow the cost of this support to be fairly distributed – rather than it going on everyone’s fuel bills.

So please do look at green taxes – and take the responsibility for delivering ECO away from energy suppliers.

Removing the Warm Home Discount, ECO and the Carbon Floor Price would reduce our bills by £63 

Which? campaign

Today the consumer group Which? has launched a campaign that calls for very similar measure as we have set out in the article above and our commentary on Ed Miliband’s price freeze.

Sign Which?’s petition (opens in a new window)

 

 

Categories: Blog, Cheapest energy, and Uncategorized.