Climate policies adding 21% to energy costs

27th March 2013

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UK businesses are paying up to 21% more for energy as a result of government policies to cut carbon emissions and costs will increase further by 2030, confirms Decc

The energy department has revised its estimates of how much policies, such as the carbon price floor and electricity market reform, are increasing energy costs in the UK.

In November 2011, Decc calculated that climate change policies were going to add 19% to energy bills in 2020 for businesses classed as “medium-sized energy users” – those consuming between 2,000MW and 20,000MWh of electricity a year and 2,778MWh–27,777MWh of gas.

In a report published today (27 March), the energy department estimates that such firms will pay 15%–21% more for their energy this year as a result of climate change policies, and that these costs will increase energy bills by 22%-26% in 2020.

Even taking into account energy savings generated by policies like the carbon reduction commitment energy efficiency scheme (CRC) and the green deal, medium-sized energy consumers will be facing bills in 2030 that are up to 40% more expensive than they would be without carbon taxes.

For energy-intensive sectors, such as those manufacturing metals, cement and ceramics, Decc predicts that the impact on bills will not be as dramatic in 2013, with extra costs restricted to 1%–14%. But companies in these sectors relying mostly on electricity for their energy could face increases of up to 60% higher in 2030. Gas-intensive firms could see their bills rise by up to 28% by the end of the next decade.

Launching the analysis, energy secretary Ed Davey claimed that measures backing renewable technologies and improving energy efficiency would benefit household bills in the long-term, but conceded that the picture for businesses is less positive.

“Which is why our new proposals to exempt and compensate the most energy intensive industries from certain policy impacts is crucial. Nothing would be gained from forcing industry, jobs and emissions abroad,” he said.

Manufacturing body, EEF, described Decc’s report as a wake-up call for the government.

“Measures to shield the most energy intensive industries from a portion of the costs will make a difference but, unless we get a grip on spiralling policy costs, steeply rising electricity prices risk making the UK an increasingly unattractive location for industrial investment,” warned policy director Steve Radley.

“The first step is scrapping costly policies with questionable environmental impact, such as the carbon price floor and the CRC, as soon as public finances allow.”

According to Decc, the EU emissions trading scheme, the carbon price floor and the future contracts-for-difference for electricity supplies will account for the bulk of the increased costs for energy intensive sectors, adding 23% to total energy costs by 2020.

The government’s plans to compensate energy intensive firms for the impacts of such policies could, however, restrict increases to 13%, states Decc.

The report also compared UK energy costs for businesses with prices in Europe, concluding that the gas prices are the lowest in the EU-15 and that electricity prices for medium-sized businesses are comparable to the EU-15 average.

Estimated average impact of energy and climate change policies on a medium-sized business user’s energy bill in 2020 – CRC participant

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