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Low-carbon policies provide insurance against risk of high costs of unabated gas-fired generation – 13 December 2012

The CCC today launched its report, Energy prices and bills – impacts of meeting carbon budgets. The report assesses the impact of carbon budgets on energy bills and confirms that annual household energy bills could increase by £100 in 2020 to support development of low-carbon technologies.

Expected bill increases beyond this timeframe are likely to be limited. In contrast, continued reliance on unabated gas-fired generation carries the risk of electricity bills for the typical household being up to £600 higher than under a low-carbon power system over the next decades.

The report considers the impact of meeting carbon budgets on household, commercial and industrial sector energy bills, and concludes that it is economically sensible to insure against future high prices by investing in a portfolio of low-carbon technologies over the next two decades.

Lord Deben, Chairman of the CCC said:

“Our analysis confirms the benefits of adopting a strategy which invests in low-carbon technologies. This provides a portfolio of energy sources as insurance against the risk of high gas prices. It lessens the impact on household bills in the long term and enhances the competitiveness of UK industry.”

The report finds that the primary causes of energy bill increases since 2004 have been an increase in the international price of gas and investment in electricity/gas networks (e.g. accounting for 62% and 16% respectively of the increase in the typical household bill). Whilst low-carbon policies and support for energy efficiency improvement have had an impact, this remains small by comparison (e.g. each accounting for less than 10% of the increase in household bills from 2004-11) – and energy efficiencypolicies have had affordability and fuel poverty benefits.

Projected impact of low-carbon policies on 2020 energy bills in specific sectors are
as follows:

  • For households: a projected increase in annual energy bills of £100 in 2020 (a 10% increase on the 2011 bill) for an average ‘dual-fuel’ household. *
  • For commercial and industrial users: bills are likely to rise by around 20-25% from 2011 to 2020 due to low-carbon policies. However energy costs represent only a very small share of total costs in these sectors (i.e. less than 0.5% of costs in the commercial sector and around 3% of costs in the industrial sector). The impact on consumers will therefore be very small (approximately one penny to every £10 spent in the commercial sector, and six pence to every £10 spent on manufactured goods). Opportunities to improve energy efficiency could offset at least part of the impact on commercial and industrial firms and all of the impact on households. However, stronger policies will be required if this potential is to be realised. Impacts will be greater for some households than others (e.g. electrically heated homes are particularly exposed to costs of low-carbon policies) and for a small number of energy-intensive industries. This is something that should be reflected in Government policy and an issue CCC will return to in a spring 2013 report on competitiveness.

Notes to Editors:

  • For further information/ media bids please contact:
    Tara Barker 207 591 6131, 07766 366 577
  • The Committee’s report sets out analysis of energy bill impacts from meeting carbon budgets to date and in future. It includes assessments of price impacts from wholesale gas prices, financing low-carbon investments and energy efficiency measures, together with scope for reductions in energy demand and bills through energy efficiency improvement. The report is available to download from www.theccc.org.uk/.
  • * A dual-fuel household is one that uses gas for heating and electricity for lights and appliances, 86% of UK households are dual-fuel.
  • The Committee on Climate Change (CCC) is an independent statutory body established under the Climate Change Act to advise the UK Government on setting carbon budgets, and to report to Parliament on the progress made in reducing greenhouse gas emissions: www.theccc.org.uk/.

Download full report