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Renewable Electricity is Taxed More Than Gas

Author: Samuel Beckingham
Updated: Oct 12, 2022
3 minutes read

Octopus Energy and, among others, the ECA are calling on the government to review the way in which electricity and gas are taxed. Currently, electricity is taxed more than gas, but because electricity can be generated using renewable means, this is an antiquated system that needs to be changed.

Electricity is currently four times more expensive than gas. In this way alone, renewable energy is being taxed more than polluting gas. According to Octopus, environmental taxes add £93 to an average electricity bill, but only £3 to gas bills. Removing the environmental taxes from electricity would make heat pumps £100 cheaper to run than gas boilers.

There are calls for the government to change this because households who rely solely on electricity for heating are the ones most likely to suffer from fuel poverty. By addressing the way in which electricity is taxed, this could relieve some of this pressure and give households a little breathing room.

Energy levies are important and scrapping them can have drastic consequences. While Octopus is trying to convince the government to change, the ECA is asking for a parity between electricity and gas taxation or to simply move them to general taxation.

In 2020 alone, 43% of electricity in the UK was produced using renewable sources, and this percentage keeps rising year on year. Keeping the higher taxation on electricity over gas holds back our movement to a net zero, greener Britain.

Talks around the energy crisis have escalated. Even the CEO of Shell is calling on the government to apply a windfall tax on oil and gas companies. Where money-making oil giants only care about profits, Shell is most likely trying to present itself in a better light. The CEO’s comments were made with the point of using the windfall funds to help those most affected by the soaring costs of energy.

While it is important to keep a lookout for greenwashing with these giant firms, the Shell CEO said it was inevitable that energy firms experiencing record profits will be taxed heavily. So why is it that Liz Truss is now looking to tax the profits of renewable electricity generators instead?

Having disregarded calls for a windfall tax on oil and gas giants earlier this year, Truss decided to fund the Energy Price Guarantee with government borrowing instead. Whereas, our level-headed neighbours in the European Union have imposed a windfall tax on the profits of energy companies that have seen profits increase because of rising costs.

Where the production costs for renewables and nuclear companies have not risen, this has allowed for profits to be made, which is what Liz Truss is targeting. But even when Shell is saying it has too much money and that the government should do something about it, why does it fall on deaf ears?

Renewable energy contract negotiations fell through earlier this month as the government was trying to force companies to accept deals of £50-£60 per MWh, way under the current prices of £490 per MWh. While no decisions have been taken at this point, the government is looking at ways to offset inflation and lower prices without imposing an all-important windfall.