Energy affordability & competitiveness

In providing advice on the levels of carbon budgets for the UK, the CCC is required to consider implications for fuel poverty and economic competitiveness.

In its inaugural report on carbon budgets , the Committee considered how the competitiveness of energy-intensive and internationally traded sectors might be affected if the UK were to reduce emissions at a faster pace than compared to other countries. It concluded that the risks were concentrated in sectors accounting for a very small part of overall GDP. And that any concerns could be offset through appropriate government policies.

In terms of fuel poverty, impacts will depend on the balance between electricity and gas price increases made as a result of emissions reductions measures, and implementation of energy efficiency measures to bring down energy bills.

The CCC’s most recent assessment is contained in its Energy prices and bills report December 2012.

Increase in energy bills since 2004

Energy bills have increased significantly in recent years for residential, commercial and industrial customers. However, only a small part of the increase reflects the costs of low-carbon measures. For example, the average annual household energy bill (of a customer using gas for heating and electricity for lights and appliances) has risen from £610 in 2004 to £970 in 2011. Most of the increase (80% in 2011) is a result of the international price of gas and investment in electricity and gas networks.

Household energy bills to 2020

We estimate that measures to support low-carbon technologies will increase annual energy bills (for the average “dual fuel” household) by around £100 by 2020.

There is scope to offset the bill increase through improvements in energy efficiency. We expect that bills will be reduced by around £35 on average through replacement of old, inefficient boilers. Further savings of £85 are available from more efficient lights and appliances and £25 from improved efficiency in heating systems (mainly improved insulation). Whether all of these savings are realised will depend on the extent to which they are backed by government legislation.

Households with electric heating

Around 7% of households use electricity for their heating. Since low-carbon policies can be expected to have more impact on electricity than gas prices, these households will face greater bill increases and therefore risk of fuel poverty. It will be important to bring forward measures to reduce these impacts. One opportunity will be through use of a share of Energy Company Obligation funding to benefit these households.

Commercial and industrial energy bills to 2020

Whilst energy costs will rise for commercial and industrial users due to low-carbon policies (by 20-25% from 2011 to 2020), the CCC predicts the final impact n the consumer to be very small, adding around 6 pence to every £10 spent on manufactured goods. Energy costs generally account for only a small component of total costs in these sectors. Therefore the economic impact of carbon policies, relative to the total production costs, will be marginal.

There are opportunities to offset at least part of the increases in bills through energy efficiency measures.

Energy-intensive industries

For a small number of energy-intensive industries there are potential concerns about competitiveness impacts of increased energy prices. These may be addressed through a combination of energy efficiency and direct measures to offset low-carbon costs. The Government has, for example, announced a series of measures that it will introduce to make compensation available.