Fiscal Background prevents heat decarbonisation in the UK

The prices of gas and electricity in the principal European nations are shown in these graphs published by BEIS on 26 March 2020.

UK industrial consumers suffer the largest electricity prices in Europe – apart from those in Italy.

UK industrial consumers enjoy the lowest gas prices in Europe – apart from those in Belgium.

Fiscal Background 2019

The lighter portion at the right of the prices shown above gives the element of taxes and environmental levies included in the prices in each country. The electricity price in the UK is increased by 60% to cover taxes and levies, amongst the highest in Europe. In contrast, the UK taxes and levies on gas add just 7%, almost the lowest in Europe.

The Fiscal Background in the UK hinders decarbonisation of heating

If the Government is serious about reducing carbon emissions from heating in the UK it is clear that the fiscal background in the UK must change: burning of gas for heating releases carbon emissions (and also releases NO2 emissions which contribute to health hazards from respiratory diseases). The heat transferred into buildings by heat pumps release no on-site CO2 (and zero on-site NO2).

Sweden is encouraging the decarbonisation of heating

Sweden adopts the opposite approach to the UK with almost no taxes on electricity and substantial taxes on burning gas. For this reason nearly all new heating installations in Sweden rely on heat pumps. Nearly all new and replacement heating installations in the UK are based on burning gas.

Spark Gap

The price of electricity in the UK is over 12 pence a kWh. The price of gas is less than 3 pence a kWh.

The price of electricity in the Sweden is under 6 pence a kWh. The price of gas is 3.5 pence a kWh.

The sales of heat pumps in Sweden are 35 times higher than in the UK per head of population.

Most of the heat pump installers in the UK are SMEs. They had little benefit from the RHI which was not successful in encouraging the uptake of heat pumps due to the fiscal background in the UK.

Fifth Carbon Budget

To achieve the Fifth Carbon Budget there is an urgent need to increase the number of heat pump installations from around 20,000 a year to 400,000 a year, starting now.

It is important to remember that an investment in a heat pump system by an individual, or a private sector company, is a private investment (of cash) for a public benefit (of lower carbon emissions for everyone).

Private investment in heat pumps is currently held back by Government's fiscal background. It is time to change this to allow the decarbonisation of heat to move forward.

Whitehall could achieve significant carbon emissions reductions and boost UK employment if it was prepared to encourage the SMEs that are ready to install heat pumps. A bonus would be a reduction in NO2 emissions – which have been a significant health risk for respiratory diseases like Coronavirus.

 

See Renewable Heating          See Renewable Cooling   

 

References:

Quarterly Energy Prices 2020, BEIS