Energy affordability & competitiveness

In providing advice on the levels of carbon budgets for the UK, the Committee on Climate Change (CCC) is required to consider implications for fuel poverty and economic competitiveness. The CCC looks at the impact of low-carbon polices on households, industry, and UK competitiveness in its Energy Prices and Bills 2017 report. To accompany this report, the CCC also published a visual representation of the key points of the report. The key messages of the report are below.

Household bills – key messages:

Falls in energy use since 2008 have saved households around £290 per year on current energy bills, more than offsetting the £105 per year committed to low-carbon policies. The bill impact of shifting to low-carbon electricity will continue to increase slowly (to £200 in 2030), but is likely to be more than offset by continued improvements in energy efficiency.

 

Table 1. Household bills in our central estimate (2008, 2016, 2030)
£/year200820162030
Low-carbon policies£50£105£200
Total Bill£1,280£1,160£1,350
Saving from energy efficiency (from previous milestone year)£270£150+
Source: CCC analysis.
Notes: Energy efficiency savings between 2008 and 2016 are due to reduced household consumption of electricity (23%) and gas (17%), adjusted for temperature patterns. We estimate that the majority of energy efficiency savings to 2030 will come from appliances and boilers, which are available to most UK households.

 

For the 85% of UK households that are dual-fuel (i.e. using gas for heating and hot water and electricity for lights and appliances) the average annual energy bill was around £1,160 in 2016.

  • Bills have fallen by around £115 in real terms since the Climate Change Act was passed in 2008, having risen around £370 from 2004 to 2008 as international gas prices rose.
  • The majority of the bill reflects wholesale and network costs unrelated to climate policy. Around £105 (9%) of the 2016 bill resulted from the shift towards a UK-based low-carbon electricity supply and support for energy efficiency improvements in homes.

The bill impact of shifting to low-carbon electricity will continue to increase slowly, but is likely to be more than offset by continued improvements in energy efficiency.

  • Meeting the fifth carbon budget, including sourcing 75% of UK generation from low-carbon sources by 2030, will add around a further £85-120 to the annual bill (£95 in our central estimate). Added to the impact on current bills, this implies that low-carbon policies will add £190-225 in total to the average annual bill in 2030 (£200 in our central estimate).
  • Households could more than offset this bill impact from energy efficiency improvements between 2016 and 2030.

UK businesses and competitiveness – key messages:

Low-carbon policies increase energy prices for businesses, but have only a limited impact on the total costs of production for the majority of businesses. Low-carbon policies have not had a major impact on the competitiveness of UK manufacturing to date.

In 2016, costs associated with low-carbon policies made up 0.2%, 0.4% and 0.7% of operating costs in the commercial, manufacturing and energy-intensive sectors respectively, without accounting for any benefits resulting from energy efficiency policies. If these costs are passed on fully to consumers they would add 3p to a £10 basket of goods in 2016, and 6p by 2030.

Past impacts. There are at least three reasons to think that competitiveness effects of UK carbon budgets have been low:

  • Output trends. With the exception of the financial crisis, the UK’s manufacturing output has shown fairly steady slow growth since 1990, despite strengthening low-carbon policies since the early 2000s.
  • Emissions drivers. Outside the financial crisis, falls in UK industrial emissions largely reflect shifts to lower-carbon fuels, improved energy productivity and structural changes towards less carbon-intensive manufacturing.
  • Impact of low-carbon policy on prices. Industrial sectors deemed by the Government ‘at most risk of carbon leakage’ now receive compensations and exemptions from the costs of low-carbon policies which can reduce low-carbon policy costs on electricity by up to 80%.

Opportunities and the low-carbon economy. The UK economy will need to adapt as the UK continues to reduce emissions and as low-carbon products replace high-carbon products internationally. That transition is already underway and presents opportunities for UK businesses, including those currently producing high-carbon products. It must be integral to the Government’s new industrial strategy.