Select committee inquiry
Energy subsidies in the UK inquiry
Closed
What the inquiry looked at
“In this inquiry the Committee considered what should constitute ‘subsidy’, the extent of energy subsidies in the UK for nuclear energy, fossil fuel energy and renewables, and what the Government should be doing to identify and eliminate those subsidies which are — using the UN’s terminology — "harmful". Full terms of reference: New inquiry launched on energy subsidies in the UK”
The committee's words, from the inquiry page on parliament.uk ↗.
What the government said
9th Report - Energy subsidies - Volume II (Volume II: additional written evidence)
No government response is linked to this report.
9th Report - Energy subsidies - Volume I (Volume I: Report, together with formal minutes, oral and written evidence)
The government responded on 3 March 2014.
Summary written by Accountability Index from the government's response.
The government welcomes the report and agrees there is no single agreed definition of an energy subsidy, but does not accept the Committee's figure of £12 billion a year in subsidies or that it provides fossil fuel subsidies.
- On definitions, the government "agrees with the committee's conclusion that there is no single agreed definition of what constitutes a subsidy".
- On transparency, it says it "does not currently see a strong rationale for publishing further assessments at fiscal events", citing existing consultation, impact assessment and monitoring.
- On fuel poverty, it states the Warm Homes and Energy Conservation Act changes are a "strengthening" rather than a weakening; a strategy is "due to be published in spring 2014".
- On the Capacity Market, it states that it "disagrees with the Committee's analysis", saying the Market is open to a wide range of technologies and "is therefore not just aimed at gas plant".
Read the government's response ↗ Read the report ↗ Report an error
How the inquiry ran
Each dot is a dated item listed on this page, from the inquiry's opening on 24 April 2013 to 11 March 2015.
- Report 2 reports
- Government response 3 Mar 2014
- Correspondence 2 letters
What it recommended 6 recommendations · 12 conclusions
1There is no single internationally agreed definition of what constitutes energy subsidy.
Concluded (the committee's words)
There is no single internationally agreed definition of what constitutes energy subsidy. Methodologies differ widely, as do the nature of transactions and support mechanisms that might be subsumed in a measurement of subsidy. It is regrettable that this has provided a way for the Government to reject—erroneously, in our view—the proposition in some areas that it provides energy subsidies.
2Energy subsidies play an important and justified role in alleviating fuel poverty, which remains a...
Concluded (the committee's words)
Energy subsidies play an important and justified role in alleviating fuel poverty, which remains a significant challenge. The Government’s proposed change of definition of ‘fuel poverty’ and weakening of the legislative commitment—to ‘address’ it rather than ‘eliminate’ it—will place a greater imperative on the Government to demonstrate that it is committed to making fuel poverty a thing of the past.
3The Government is undertaking a review to examine the scope for reducing ‘green levies’ in...
Concluded (the committee's words)
The Government is undertaking a review to examine the scope for reducing ‘green levies’ in energy bills. While such levies currently account for 9% of bills, they may not increase bills in the longer term because they will drive energy efficiency. The review cannot significantly assist the poorest bill-payers in the short term simply by scrapping some green levies, because the biggest component of such charges in bills—the Energy Company Obligation and Warm Home Discount—is currently already directed at them.
4Renewables energy has an important part to play in delivering the UK’s emissions reduction targets,...
Concluded (the committee's words)
Renewables energy has an important part to play in delivering the UK’s emissions reduction targets, and allowing the UK to play a full role in tackling climate change. Subsidies for renewables are, in turn, an essential lever to provide certainty to industry and drive investment in those technologies.
5The Hinkley Point C deal will be scrutinised by the European Commission for state aid...
Concluded (the committee's words)
The Hinkley Point C deal will be scrutinised by the European Commission for state aid implications. It makes no sense to claim that a subsidy applicable to more than one technology therefore does not constitute a subsidy. It is already clear that new nuclear is being subsidised. The contractor for Hinkley Point will be able to use the guaranteed strike price for the electricity generated to raise capital at lower cost. It is debateable which of the various other Government-termed ‘support mechanisms’ and ‘insurance policies’ also constitute subsidy. Even in terms of the Government’s ‘similarity’ definition of ‘no public subsidy for new nuclear’, there are aspects of support which are not ‘similar’ to that provided for other types of energy, notably on decommissioning and waste.
6The capacity payments regime will constitute a subsidy for gas-fired electricity generation because in practice...
Concluded (the committee's words)
The capacity payments regime will constitute a subsidy for gas-fired electricity generation because in practice it is the only technology that will be eligible for the payments when the capacity contracts are deliverable in 2018–19.
7Field allowances for North Sea oil and gas do not fully offset relatively high starting...
Concluded (the committee's words)
Field allowances for North Sea oil and gas do not fully offset relatively high starting rates of corporation tax and petroleum revenue tax. The allowances nevertheless represent a subsidy because the higher tax rates compensate for the use of state- owned fossil fuel deposits.
8As the Energy and Climate Change Committee reported in 2011, hydraulic fracturing and horizontal drilling...
Concluded (the committee's words)
As the Energy and Climate Change Committee reported in 2011, hydraulic fracturing and horizontal drilling are both techniques that have been present in the UK for many years. They are not new technologies. Fracking is not a technology warranting financial support to become viable and competitive, and on that basis it does not warrant subsidy through a favourable tax treatment.
9The variation in definitions of subsidy allows the Government to resist acknowledging subsidy in many...
Concluded (the committee's words)
The variation in definitions of subsidy allows the Government to resist acknowledging subsidy in many areas, particularly on nuclear energy and the lower rate of VAT on domestic and small business heating fuel and electricity bills, and to claim that it has no ‘harmful’ or ‘inefficient’ subsidies despite fossil fuel consumption contributing to our greenhouse gas emissions. However, the reality is that energy subsidies in the UK are significant, cover all types of energy technology and run to about £12bn a year. Much of this is directed at fossil fuels.
10Unless the Government is prepared to make that commitment [to make fuel poverty a thing...
Concluded (the committee's words)
Unless the Government is prepared to make that commitment [to make fuel poverty a thing of the past] and show how it will be delivered, the changes to the fuel poverty definition and target, in part being made through amendments to the Energy Bill, should be stopped.
11If the [‘green levies’] review finds some levy savings in energy bills, perhaps by shifting...
Concluded (the committee's words)
If the [‘green levies’] review finds some levy savings in energy bills, perhaps by shifting them to general taxation, the imperative for energy efficiency measures must remain the priority because of the underlying need to tackle climate change by reducing our emissions.
12To aid transparency, if the Government introduces its proposed new measure of fuel poverty, it...
Recommended (the committee's words)
To aid transparency, if the Government introduces its proposed new measure of fuel poverty, it should also continue to publish statistics on the current metric for the remainder of this Parliament, alongside the new figures. In the Autumn Statement, the Government should make clear how any changes to green levies will change the amount that those in fuel poverty will have to pay, by how much and how soon.
13DfID should make, and publish, an assessment that compares its aid expenditures and the extent...
Concluded (the committee's words)
DfID should make, and publish, an assessment that compares its aid expenditures and the extent of fossil fuel subsidies for each aid-recipient country, and UK Export Finance should similarly provide a comparative analysis of export finance support and fossil fuel subsidies. DfID should then include these analyses in a revision of its Environment Strategy, along with the two departments’ assessment of why continued aid and export support in each case overrides the need for eliminating fossil fuel subsidies in those countries.
14While the Government has a helpfully positive view on the need to increase the level...
Recommended (the committee's words)
While the Government has a helpfully positive view on the need to increase the level of emissions reduction ambition in the EU, it should rethink its hostility to a separate continued target for the deployment of renewables. Even without such a continued EU target, however, the Government should be ready to fully use the scope for renewables subsidies to help meet our climate change obligations.
15The Government must use the Autumn Statement as an opportunity to provide a clear and...
Recommended (the committee's words)
The Government must use the Autumn Statement as an opportunity to provide a clear and comprehensive analysis of all energy subsidies in the UK, to present its methodology and calculations, and to show how these figures differ from those produced using the methodologies of the main international institutions. This would bring much needed transparency and provide a basis for an overdue debate on the rationale and justifications for energy subsidies in the UK. It would also provide an evidence base for developing and refining policies for tackling climate change.
16We do not believe there is any case for treating subsidies to mature energy technologies...
Recommended (the committee's words)
We do not believe there is any case for treating subsidies to mature energy technologies where there is little likelihood of cost reduction in the future in the same way as technologies that can, over time, compete in the market place without long-term subsidy. We consider that the Government should present a case for subsidy, and hence for the application of EU state aid rules, separately for each energy category.
17More fundamentally, the Government needs to demonstrate leadership in increasing the deployment of renewables and...
Recommended (the committee's words)
More fundamentally, the Government needs to demonstrate leadership in increasing the deployment of renewables and in promoting energy efficiency through the careful and targeted use of subsidies and levies, to provide certainty over the longer term for the investment in the technologies that these will depend on. In the Autumn Statement, the Government should make a start on that path by making it clear which minister and which department will be responsible for fully delivering our climate change obligations in a way that avoids maintaining harmful fossil fuel subsidies and protects the fuel poor.
18The Government should also use the Autumn Statement to introduce a new target: to reduce...
Recommended (the committee's words)
The Government should also use the Autumn Statement to introduce a new target: to reduce the proportion of energy subsidies that support fossil fuel, rather than low- carbon, consumption.
Correspondence 2 letters
- 11 Mar 2015Letter to NAO on Hinckley Point C, 11 March 2015From committee
- 11 Mar 2015Letter from NAO on Hinckley Point C, 26 February 2015To committee