Green policy costs hitting poorest households hardest

The cost of green energy and low-carbon policies are hitting low-income groups hardest, according to a new report from the Institute of Public Policy Research (IPPR)

The report, released today (17 June) claims that the price of pursuing the government’s low-carbon programme is falling disproportionately on the poorest in society.

Those in the poorest 10% of households are spending 1.7% of their disposable income on funding green and social policies – six times more than those in top 10%, who spend a mere 0.3% of their income, according to the IPPR.

The report also found that the greatest jump in energy costs was between the lowest 10% and the second lowest, who pay 1.1% of their income, or almost a third less.

“Serious thinking is needed now to find ways to mitigate the costs that are being put on to consumers without reducing the ambition, which is shared by all the major political parties, for substantially reducing levels of carbon pollution,” the report reads.

Policy changes

The lowest earners were found to spend more on their energy bills due to exclusion from the lowest available energy tariffs. Low-income households often used prepay meters, which add £80 to the average annual energy bill, and rarely switched energy providers to access lower tariffs. Since the cost of government policies are applied as a percentage of the energy bills, these price differences disproportionately impact poorer households.

The report called for policy changes which could help alleviate the burden of low-carbon policy on billpayers and take the strain away from those with the lowest earnings.

Suggested policy changes included introducing public ownership for new nuclear power to secure gains for taxpayers, introducing a ‘Help to Heat’ initiative to ensure energy-efficiency initiatives were targeted at fuel-poor households and offering every energy customer a green levy allowance to reduce the burden placed on low-income households.

The report also called for changes to the government’s planning for offshore wind farms by implementing a new model of development used by Denmark, which sees the government set out packages for offshore development and invites developers to bid for the development.

Onshore wind

It also asked the government to lift the ban on onshore wind farm subsidies. The IPPR claimed this would ensure cheaper onshore wind capacity was not replaced by more expensive offshore wind.

This follows Energy Secretary Amber Rudd’s announcement last month that the Conservatives would push ahead with controversial plans to end the subsidies for onshore wind, with no more development without the support of local communities.

The IPPR added each consumer could be offered levy relief without jeopardising climate targets while creating a more progressive funding model.

The report concludes by recommending six changes to the current policy framework: – 

  1. Introduce a public ownership option for new nuclear capacity: to reduce the risks involved in developing new nuclear capacity, and thus the cost of capital, and to secure some gains for the British billpayer
  2. Adopt the Danish model of procurement to cut the cost of offshore wind projects: to make it more straightforward for offshore wind developers to secure suitable sites and consents
  3. Lift the moratorium on onshore wind farms: to ensure cheaper onshore wind capacity is not replaced by more expensive offshore wind or other technologies
  4. Replace the capacity market with a strategic reserve: to avoid compensating providers for the same kind of high-carbon generation that is simultaneously being penalised by other policies
  5. Replace the current energy efficiency policy with a ‘Help to Heat’ strategy: to ensure energy-efficiency initiatives are more effectively targetted at fuel-poor households
  6. Offer every consumer a green levy allowance: to help reduce the unfair burden currently placed on lower-income households, and to incentivise energy efficiency.

Matt Field

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