Hydrogen levy on British homes officially axed
The UK Government has officially cancelled plans to impose a levy on annual household energy bills to fund the development of low-carbon hydrogen infrastructure.
Last year, the UK increased its ambitions for the production of low-carbon hydrogen, targeting 10GW of production capacity by 2030.
Ministers subsequently firmed up new funding models for the first green (renewable) and blue (natural gas with carbon capture) hydrogen projects – but questions remained about the funding of additional capacity.
Energy and Net-Zero Secretary Grant Shapps’ team had originally floated a levy on domestic energy bills. This would cost the average family around £118 per year and be implemented from 2025.
It proved unpopular across all major political parties including the Conservative Party. MPs urged Shapps not to burden the general public with additional costs amid the cost-of-living crisis. Arguments were also made that, because heavy industrial sectors are likely to be the first users of hydrogen, they should fit the bill rather than homes which would not necessarily use the gas.
Shapps told media representatives in June that he had shelved the proposals for the levy. His team has now publicly confirmed that the levy will be axed this week, through amendments to the Energy Bill. The Bill will be changed to signal that businesses buying, storing and transporting gas should bear the extra costs this decade.
The Department for Energy Security and Net-Zero has called the move necessary to “put fairness at the heat of plans to drive forward low-carbon hydrogen, which will boost energy security and help lower bills in the long-term”.
This has been cause for celebration for several organisations in the UK’s green economy, including the Energy and Climate Intelligence Unit (ECIU), E3G and Onward, which cautioned against the levy.
“Dropping the hydrogen levy is the right decision to maintain public support for net-zero and deliver politically sustainable funding for the industry,” said Onward’s head of energy and climate Jack Richardson.
The Government is yet to make a strategic decision on whether hydrogen will have a major role to play in replacing gas in home heating. It is set to make that choice in 2026, following a series of local trials of increasing size.
Gas networks are pushing hydrogen blending as a key option.
Other organisations including MPs’ committees and think-tanks argue that electrifying heating would be appropriate for most homes, and that hydrogen should be used in harder-to-abate sectors like heavy industry to maximise carbon savings and cost-effectiveness.
It also bears noting that some communities are not convinced that hydrogen heating would be affordable or safe. It was confirmed in July that the UK’s first village-scale trial of hydrogen in domestic uses, set for Whitby, was cancelled due to fierce local opposition.