Action to tackle climate change and improve energy efficiency has occurred alongside reductions in household energy bills since the Climate Change Act was passed, new analysis by the Committee on Climate Change (CCC) shows.
While measures to deliver a cleaner, low-carbon electricity system added around £9 a month to the typical UK household energy bill in 2016, this was more than offset by a cut of over £20 per month due to reduced energy demand mainly from more efficient lights and appliances.
In 2016, low carbon-policies made up around 9% of an annual ‘dual fuel’ household energy bill of around £1,160. The majority of the typical household bill resulted from wholesale, transmission and distribution costs which are unrelated to the Government’s low-carbon policies to meet UK carbon budgets and contribute to global efforts to tackle climate change.
The conclusions are set out in the CCC’s fourth independent assessment of the impact of carbon budgets on energy bills. The Committee finds that:
- Typical ‘dual fuel’ households, which use gas for heating and hot water and electricity for lights and appliances, paid (in real terms) £115 less per year for their energy in 2016 than in 2008 when the Climate Change Act was passed. The total bill includes a little over £100 annually to support the UK’s transition to a cleaner, more efficient energy system but also reflects lower energy demand, largely due to more efficient appliances.
- Improvements in energy efficiency have saved the typical household around £290 per year since 2008 as demand for electricity and gas has reduced. This saving has come largely through the replacement of older products such as fridges, freezers and boilers with new, higher-standard energy efficient alternatives.
- The gradual shift towards low-carbon electricity could add a further £85-120 per year to a typical bill by 2030 if further policies to meet UK climate objectives are put in place. Further improvements in energy efficiency have the potential to deliver significant savings for households in future (around £150, or more if wholesale costs continue to rise), which will more than offset the cost of shifting towards low-carbon sources of energy.
- UK electricity prices for businesses are higher than those in comparable countries, such as France and Germany, but gas prices are lower than those in comparable European countries. Higher electricity prices are largely explained by higher UK wholesale and network costs. The Committee has called for more detailed study and greater transparency about the different costs of electricity supply across Europe.
- If all climate-related policy costs on businesses were passed on to consumers through higher product prices, this could have added up to 3 pence to the average £10 basket of goods and services in 2016, which could rise to about 6 pence by 2030. However, overall low-carbon policies have not had a major impact on UK competitiveness to date.
- Some energy-intensive manufacturing sectors face higher costs from climate policies but those deemed most ‘at risk’ are largely compensated for those costs. The Committee has recommended that compensation for firms at risk of ‘carbon leakage’ should be predictable and reliable. Detailed analysis of specific sectors, including steel and cement, show compensation has reduced costs as a result of low-carbon policy, but other European countries put compensation mechanisms into place faster than the UK.
There is also a range of opportunities for business arising from the transition to a low-carbon economy. The UK low-carbon economy already makes up 2-3% of GDP and employs hundreds of thousands of people. Its direct contribution to the economy is the same as the oil, gas and coal extraction sectors put together. The low-carbon transition will create opportunities across current and new sectors of the economy.
Lord Deben, CCC Chairman, said: “Action to deliver a cleaner, more efficient energy system is already delivering benefits for households and businesses. UK emissions are falling – down 38% from 1990 to 2015 – while GDP has risen by almost 65% in the same period. Meanwhile, the typical household energy bill has fallen in real terms since 2012. The UK’s progress to reduce emissions, and its comparative advantage in important areas such as the automotive sector, offer opportunities for future growth and employment while delivering vital action to tackle climate change.”
Notes to editors
- The CCC’s new report ‘Energy prices and bills – impacts of meeting carbon budgets’ was published on Thursday 16 March. This is the Committee’s fourth assessment of the impact of carbon budgets on residential, commercial and industrial sector energy prices and bills (previous CCC assessments were published in 2011, 2012 and 2014).
- Each UK carbon budget covers a five-year period, with budgets set at least three periods in advance. The five carbon budgets cover the periods 2008-2012, 2013-2017, 2018-2022, 2023-2027 and 2028-32. The fourth carbon budget requires that emissions are reduced by 50% in 2025 relative to 1990 levels and the fifth carbon budget requires that emissions are reduced by 57% in 2030 relative to 1990 levels.
- UK emissions have fallen 38% since 1990 while GDP has increased by almost 65% in the same period. Source: BEIS (2017) Final UK greenhouse gas emissions national statistics: 1990-2015; ONS (ABMI series).
- Energy bills rose by about £370 from 2004 to 2008 driven by rising fossil fuel (and particularly gas) prices. Since 2008, bills have been broadly flat: total annual energy bills in real terms are about £115 lower than they were in 2008. The cost of power sector climate policies are almost exclusively placed on electricity bills which has added about £85 to a typical annual household electricity bill in 2016. Energy efficiency savings, largely from improved standards for appliances like refrigerators and boilers, have saved households about £490 since 2004.
- The most energy-intensive manufacturing sectors that are potentially at risk from climate policies comprise about 2% of GVA. They have been subject to detailed study and investigation by the CCC and others. These sectors have been compensated for the cost of climate policies to offset any potential competitiveness impacts. The CCC’s most recent, detailed analysis suggests compensation took longer to be paid in the UK, when compared with other countries, but is at broadly similar levels.