When the Levy Breaks

For those over 45

Not much blogging going on over the last three weeks, I am afraid. This was primarily due to sitting on the balcony in our holiday apartment, watching the precise manoeuvres of  the plane as it flew low over the bay, flipped over the hill and expertly scooped bellyfuls of water to deposit on the hills fortunately some way away behind us.  However, modern holidays being what they are, and apartments now having free wi-fi (when it worked) there really was no final excuse for not setting hand to keyboard. I’m not sure though from what I could gather from information obtainable by such means that there were exactly momentous events taking place in the UK energy and climate change world. (I do here set aside the reports of an unprecedented melting of summer ice in the Arctic which seem to me at least substantially momentous, but not specific to the UK specifically).  Two rather random snippets emerged from the fog of far away, however: one was that SSE announced substantial energy price rises, blaming, in passing the effect of green levies on bills; and the other was that Danny Alexander (yes, the underling to George Osborne at the Treasury) is to boldly go where no Lib Dem has gone and denounce Governmente energy policies in a motion at the upcoming Lib Dem  Conference. More of that in another piece.

Of course, when the SSE price rise components are dissected, there is not the big effect on bills from green levies that were headlined initially: network costs (25% of the bill) up 9%, green levies (10 % of the bill) up 30%, and gas prices  (50% of the bill) up 14%.  So it’s gas prices, then that have essentially pushed the bill up. SSE, which is less vertically integrated than others of the ‘big six’ are, I think, primarily reflecting on what it has paid others for the energy they will supply this winter. So that’s that then. DECC seemed to think so, putting out an unusually dismissive press release almost immediately, also pointing out the preponderance of gas rises in the cost components, and being …shall we say… a little sharp about SSE’s performance on achieving their CERT and CESP obligation targets.

Well, not quite, I think, on  achieving a little distance between announcement and response. It’s true that as CERT and  CESP come to an end struggles to perform against obligation are placing costs on companies that perhaps could have been avoided if they had acted earlier. I think that’s what SSE means by its reference to ‘cost bubbles’ in its original statement on the rises. And it’s true that, even though SSE estimate that rises are 30% of 10% (i.e. not  a very large proportion of the bill)  those rises will probably continue over the longer term, particularly since the Government has welded in a whole tranche of new levies and obligations into the Draft  Energy bill appearing as an actual Bill before Parliament any day now.

So the significance of SSE’s claims , I think, lies not in their accuracy as a fair description of what is centrally driving price rises currently, but as a harbinger of what may be to come. They are, as far as I am aware, the first company to put levy costs centre stage in a bill rise announcement. Others may well follow.

Levies, then, may in the future really represent a significant component of energy bills , and at that point, their presence as a ‘flat tax’ on the possession of an energy bill, and not the use of energy by that consumer, may gain real traction as a reason for not providing the support for renewables and energy efficiency that we know will remain just essential over the coming period. So if all the low carbon development costs eggs are put in the one levy basket, there is every prospect that the basket will be dropped and the eggs smashed. (That’s enough metaphors for now, I think.)

These levies, of course became the preferred mechanism of government (both this one and the last one) because they provided a method of financing devices such as the Renewables obligation and energy efficiency schemes ‘off balance sheet’ – i.e. they were not seen as taxation and would not ’count’ as public expenditure. The present Government is has certainly been alive to the possible march of levies in taking elements of Carbon Capture and Storage (assuming it actually happens) outside a levy programme, and stumping up for the Renewable Heat Incentive from general taxation.  But they have, in addition, done exactly the wrong thing to the original logic of levies by effectively declaring them all ‘public expenditure’ after all, and bringing them into the choking embrace of the ‘levy cap’ about which I’ve posted previously (here).  So we now have levies , and more to come, which then stop working because they are capped, overthrowing the whole original intention

So why not break out of this dead end? The best route to do this, share the load of development and end the ‘flat tax’ effect, is, I think to harness future ‘green taxes’ as the underwriting instead of direct customer levies. Such taxes, such as the Carbon Floor Price and  the auctioning of  European Emissions Trading Scheme certificates, could bring in some £33.6 billion to treasury by 2022. The Energy Bill Revolution campaign has highlighted these income streams (p27) and how a far more effective programme of raising the energy efficiency of homes could be undertaken using them. They’re on the right track, but I think we need to do more, which is the subject of some thoughts I’ve been having on the matter of ECO and the Green Deal.  But more of that, perhaps later.

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One thought on “When the Levy Breaks

  1. Pingback: Price Rises and a World Beyond Levies | alan's energy blog

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