Blog: Progressive policy could reduce energy bills for 70% of households

02 Mar 2018

70% of UK households would be better off if energy policy costs were removed from gas and electricity bills and applied according to household income.

That is according to research published today by the UK Energy Research Centre [1]. In ‘Funding a Low Carbon Energy System: a fairer approach?, researchers from the University of Leeds propose alternative mechanisms for funding emissions reduction schemes, highlighting how it is possible to raise the necessary funds to address climate change, whilst also protecting fuel poor households.

Currently within the domestic sector, levies to recover the costs of energy policy are applied as a percentage of household energy bills [2]. In 2016 these energy policy costs added 13% to the average household electricity and gas bills, adding £132 to the average yearly spend.

However, in the poorest homes, money spent on energy accounts for 10% of total spend, whereas for the richest households it accounts for just 3%.  Applying energy costs on this spend therefore disproportionately penalises those that are most vulnerable to rising energy prices.  

Accounting for total energy consumed

Another strand of the research compares the total amount of energy consumed by households with different income levels. The research highlights that in 2014, the richest 10% of households consumed almost three times as much energy as the poorest households [3].

Total energy consumption measures all of the energy used to provide households with the products they buy and services they access, and incorporates aspects such as recreation activities, travel and imported products. Energy for heating and power in our homes accounts for only 12% of total energy consumption, highlighting the significant difference in spending patterns between high and low income households.

An alternative approach would be to place policy costs on businesses, or fund the costs through general taxation, both of which would lower the burden on the poorest households. The general taxation approach would better align energy demand with policy costs, and would reduce costs for 70% of UK households.

John Barrett, UKERC Co-Director says:

It is essential that climate change policies do not cause further inequality by penalising families with the lowest energy consumption and who are most at risk of fuel poverty. Progressive energy policies should ensure that those with the highest energy demand and the means to afford it, pay for the solutions.

Anne Owen, UKERC Researcher says:

Our work shows that once you consider the hidden energy in the manufacture of all the goods and services we buy, it is only fair that richer homes contribute more to energy policy costs. Low income households, who experience fuel poverty, could be exempt from these additional charges if we rethink how low carbon energy schemes are funded.

Notes to editor:

  1. The UK Energy Research Centre (UKERC) carries out world-class, interdisciplinary research into sustainable future energy systems. It is a focal point of UK energy research and a gateway between the UK and the international energy research communities. Our whole systems research informs UK policy development and research strategy. UKERC is funded by The Research Councils Energy programme.
  2. Most of the money is used to support the provision of renewable energy: 58% through the Renewables Obligation, 2% through long term contracts between energy generators and government, and 18% through the Feed-in Tariff scheme where participants are paid set tariffs for producing low carbon electricity. 12% is used to fund energy efficiency programmes under the ECO targeted at fuel poor households, and the Warm Homes Discount accounts for a further 5% allowing certain households to apply for reductions on their energy bill. The remaining 5% supports the scheme to replace traditional gas and electricity meters with smart meters.
  3. In 2014, the richest 10% of households each consumed an average 12.7 tonnes of oil equivalent compared to 3.3 tonnes consumed by the poorest 10%.