Government mulls energy tax reforms to drive heat pump use

A decision to remove green surcharges on household electricity and place them on natural gas instead is reportedly being considered by the UK government to accelerate heat pump use.

The Financial Times newspaper has reported that ministers are expected this month to outline a shift in policy that would see environmental taxes currently applied to support the decarbonisation of electricity generation being put onto gas bills.   These potential changes are expected to be announced as part of a wider reform of the country’s energy policy that is expected to be published shortly.

A statement from the Department for Business, Energy and Industrial Strategy (BEIS) said no formal decision had been taken on its preferred approach to support lower carbon technologies.

The department added, “We want to encourage people to take up technologies such as heat pumps and electric vehicles. Affordability for consumers and taxpayers will be at the heart of our approach, as will ensuring protections remain in place for the most vulnerable.”

Plans to publish a Call for Evidence on energy consumer funding and affordability were first announced in the government’s Energy White Paper late last year. This consultation is intended to look at how different end user behaviour can be incentivised to help support a move to lower carbon heat through billing.

The UK government has set a target of ensuring a minimum of 600,000 heat pumps are being installed annually from 2028.  However, the heating sector and environmental watchdogs have warned that there remains significant shortfalls in existing policy and incentives to ensure this target can be met.

Calls for reform

A panel discussion on the decarbonisation of domestic heat held earlier this year by London South Bank University (LBSU) argued that a continued focus on subsidising gas over electric with surcharges was harming government ambitions to encourage lower carbon heat systems.

Andy Ford, Professor of Building Systems Engineering at LBSU, said during the event that reforming energy costs and subsidies was one example of the wholesale changes needed to begin making progress on mass adoption of cleaner heat technologies.

Professor Ford added, “Massive cultural changes do not happen without stimulus. Markets do not just form themselves.”

“The UK has spent decades of infrastructure investment to deliver low-cost natural gas, and the UK heating system, more than any other EU contemporary, is almost wholly reliant on this single high carbon energy vector.”

Other energy experts have also cited taxation reform as being an important consideration in transforming heat demand across the UK.

Emma Pinchbeck, chief executive officer for utilities trade body Energy UK, told a parliamentary committee last December that the organisation saw strong demand for heat pumps in homes.

However, she argued that there remained major barriers to expand take-up due to a failure to create an attractive proposition to encourage end users to adopt the technology.

She said, “Before even beginning to have a conversation with consumers, we do need to know that it is going to be financially attractive to install them.”

“The important thing to note about the UK market in particular is that the way we have constructed policy means that all the current price signals on the market point to the gas boiler as being the most sensible technology to install.”