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'Green taxes' fight energy bills not fuel them

'Green taxes' fight energy bills not fuel them

Just a sixth of SSE's big price hike is down to government levies and those levies help curb the real cause: rising fuel prices

It's a simple but crucial point. The overwhelming reasons for power bills soaring are that fossil fuels are getting more expensive and that two decades of underinvestment by energy companies in the UK's now creaking energy system has left customers with a steep bill to catch up.

It therefore follows that the best way to keep bills down is getting off the fossil fuel hook and dramatically improving the nation's appalling level of energy efficiency.

Yet the raging debate over energy bills is all too often dominated by those dreaded "green taxes" which critics claim are rocketing bills into the stratosphere. That claim is demonstrably false and the 8.2% price rise announced on Thursday by SSE provides the perfect example.

SSE's own figures, analysed by Reg Platt at the IPPR think tank, show the rise equates to £93 a year. Of that, £23 is due to rising wholesale energy costs and £28 for investment in the grid and meters. VAT adds £5 and another £23 is unaccounted for, but will include SSE's own costs, profit and projected rises for the next year, during which SSE has pledged to freeze its tarfiffs. That all means that just one sixth of SSE's rise - £15 - is due to the rise in government "green taxes".

Half of those "green taxes" are in fact for social programmes (see graphic below) that help keep the poor and old a bit warmer in winter, by better insulating their homes. The other half goes on supporting the clean and renewable energy that will reduce householders exposure to future rises in fossil fuel costs. Yes, "green taxes" will probably double by 2020, but the bill savings they deliver will last decades.

So, despite "green taxes" being only a small part of the reason for rising bills and being the only part of the rising costs that actually helps reduce future bills, the assault against them continues.

SSE's own press release complains that "government-imposed levies on energy bills" have gone up 13%, network costs have gone up 10% and wholesale energy costs in global energy markets have gone up 4%. When its presented like that, by energy companies and many newspapers, it's little wonder people fear that "green taxes" are out of control.

Why is the debate so out of kilter? First, if you hold the fringe belief that climate change is not a threat then "green taxes" are clearly ludicrous - "scrap them!" Second, energy companies sell energy so, whatever they claim, they have little commercial incentive to cut bills through energy efficiency. Third, with a helpfully climate-sceptical media, "green taxes" are the softest target.

As the temperature as the energy bill argument rises yet further and "green taxes" are further villified, take a step back, do the math and you'll find those very same "green taxes" are in fact the best weapon you have to fight future energy bill rises.

The Facts:

Average household energy bill: £1267
of that
whole sale price: 597
network costs: 257
other+margin: 240
VAT: 60
climate change policies: 112

of that
47 for poor households insulation schemes
11 pensioners discount
30 ROC/ subsidy for renewables
8 - emmission trading scheme
7 - feed in tarrif
5 carbon floor price
3 smart meters