Convert fossil fuel subsidies into subsidies for renewable energy

The UK Parliament has declared a climate emergency. It now needs to take action. A simple, budget-neutral way to do this would be to convert existing subsidies for fossil fuels (currently the highest in Europe) into subsidies for renewable energy and insulation, say over a 1-3 year timeframe.

UK government has the biggest fossil fuel subsidies in the EU: https://www.theguardian.com/environment/2019/jan/23/uk-has-biggest-fossil-fuel-subsidies-in-the-eu-finds-commission

UK Parliament has declared a climate emergency: https://www.bbc.co.uk/news/uk-politics-48126677

The UK does not give any subsidies to fossil fuels. The UK follows the approach of the International Energy Agency: “A fossil fuel subsidy is any government measure or programme with the objective or direct consequence of reducing below world market prices, including all costs of transport, refining and distribution, the effective cost for fossil fuels paid by final consumers, or of reducing the costs or increasing the revenues of fossil-fuel producing companies”. This approach is also followed by the G20’s EU member countries.

Although the UK does not give any subsidies to fossil fuels, the UK supports the G20 commitment to rationalise and phase out fossil fuel subsidies across the globe that encourage wasteful consumption, and sees clear benefits in doing so.

OECD inventory methodology lists a broader range of measures, including many that do not reduce consumer prices below world market levels. Such mechanisms are classified as support without reference to the purpose for which they were first put in place or their economic or environmental effects. No judgment is therefore made as to whether or not such measures are inefficient or ought to be reformed. This methodology formed the basis of the European Commission’s report “Energy prices and costs in Europe”.

The UK does have some reduced tax rates on energy consumption. For example, the reduced rate of 5% VAT which applies to supplies of domestic energy, regardless of whether that energy derives from a renewable source or not. Such reliefs are important in keeping bills down for families. The application of a reduced rate of tax is not a fossil fuel subsidy as, relative to world market prices, a tax raises the cost paid by consumers. However, such measures are included in the OECD inventory methodology, regardless of their context in the overall tax regime.

As the UK does not have any fossil fuel subsidies, the Government is not in a position to convert fossil fuel subsidies into subsidies for renewable energy. But the Government is in any case already providing significant support for renewable and low carbon energy.

For example, the Government is spending £4.5 billion between 2016 and 2021 to support the development of renewable and low carbon heating through the Renewable Heat Incentive. Between 2015 and 2021 the government has committed to spend up to £505m on Energy Innovation to accelerate the commercialisation of innovative clean energy technologies.

The majority of funding for renewable energy is made up of consumer-funded levies. The Government has provided £30.7bn of support for low carbon electricity since 2010 through the Renewable Energy Obligation (RO), Feed-in-Tariffs (FiT), and Contracts for Difference (CfD) schemes. This has all come from consumer levies. Levy spending was £1.3bn p.a. in 2010 and is forecast to exceed £10bn p.a. by 2020/21.

Government has committed up to £557m of annual support for further CfDs, which is the main scheme for bringing forward new large-scale renewable energy power generation.

Overall, emissions in the power sector were reduced by 58% between 2010 and 2018. At the same time, renewable electricity generation rose from 7% to 33% of total generation.

HM Treasury

This is a revised response. The Petitions Committee requested a response which more directly addressed the request of the petition. You can find the original response towards the bottom of the petition page (https://petition.parliament.uk/petitions/263313)