- The green levy is a climate change tax, introduced by the UK government in 2001
- Green levies make up about 8% of energy bills, which is an average of £155 per year
- Scrapping the green levy would reduce energy bills but lead to higher costs in the long run
Green levies are a tax measure imposed by the government on sources of pollution, which in the UK can be found on the energy bill for households. It amounts to 8% of the bill and raises funds for the government to support energy-efficiency schemes in the country.
In this article, we will tell you everything you need to know about the green levy, and whether scrapping it is a good or bad idea.
What is the green levy and how does it work?
Green levies are taxes imposed by a government on contributors to climate change, such as pollution or carbon emissions.
With a green levy, the government wants to discourage the use of inefficient sources of energy and instead encourage the implementation of environmentally friendly alternatives. For example, fuel-inefficient vehicles have to pay a green levy as part of London’s Ultra-Low Emission Zone.
The ‘green levy’ colloquially describes several green levies that are part of domestic energy bills in the UK. It amounts to roughly 8% of the bill and is used to fund social and environmental challenges, like insulation, cutting emissions, and supporting those who need it with lower energy bill costs.
Some of the specific energy-efficiency schemes that the green levy has funded include the Energy Company Obligation (ECO) and the Local Authority Flex Scheme (LA Flex).
What impact does the green levy have on energy bills?
Green levies are applied to dual bills for electricity and gas, which are common in the UK. In 2022, the tax amounted to 8%–9%, which for an average energy bill of £2,500 a year, amounts to a green levy of roughly £200.
Without the green levy, the price of gas and electricity for households would be around £2,300 per year.
However, it is important to know that the wholesale price of gas and electricity is the main reason for the recent hike in energy costs. This is the price that energy companies pay and then pass over to the consumers. Energy efficiency schemes funded by the green levy aim at lowering these costs in the mid- to long-term.
Why was the green levy implemented?
The idea behind the green levy is to provide environmental and social support as part of the government’s Climate Change Programmes. The tax supports vulnerable households and aims at reducing energy costs for everyone in the future by implementing schemes like ECO and LA Flex.
Has the green levy been a success?
Overall, the green levy has been a success so far, funding upgrades to renewable technologies, better insulation, financial support for heating, and cost savings for households.
Programmes like ECO and the Green Homes Voucher have had a major impact on lower-income people: ECO alone has delivered improved infrastructure to over 2.3 million households in the UK. This amounts to an estimated cost saving of £290 per year for vulnerable households.
Has the green levy had an impact environmentally?
Yes, thanks to the ECO programme, around 6.2 million properties have improved their insulation. According to the Insulation Assurance Authority, this has resulted in a reduction of over 26.2 million tonnes of carbon emissions and a reduction of fuel bills by a total of £6.2 billion.
The scheme has also supported the rise of renewable technology and dropped the demand for fossil fuels, for example, through the Boiler Upgrade Scheme under ECO4. This has helped the UK in its aim to achieve net zero emissions by 2050.
Is the green levy now doing more harm than good?
Households have faced an enormous increase in their energy bills, which has fuelled a cost-of-living crisis in the UK. However, this is not due to the green levy. The cost of this social and environmental tax has dropped from over 20% to only 8%, making it much less than VAT and other taxes included in your energy bill.
If anything, the energy crisis shows that it has never been more important to deliver schemes like ECO with the help of the green levy. The mechanism can help tackle fuel poverty, lower energy bills, and save energy.
What would happen if the UK removed the green levy?
Removing the green levy is something that conservative and climate change-sceptic politicians have called for in the past. Every increase in energy bills, in fact, tends to lead to calls for scrapping the green levy. However, this is not the solution.
What would happen to energy bills?
At first, it seems like removing the green levy would slightly decrease energy bills. However, losing programmes like ECO and LA Flex would quickly lead to higher electricity prices. Houses without insulation will need more energy, for example. And the most vulnerable households would lose valuable support.
Green levies represent only a small fraction of bills. Increases are being driven by record-high wholesale prices. Without the green levy, there would be fewer policies in place to stop even higher price increases. This means that the green levy more than pays for itself.
Would the government be able to afford new energy efficiency schemes?
Losing the green levy from energy bills would mean that the government would need to find another way of funding energy efficiency schemes.
This could be done through general taxation but would lead to political difficulties and a slowdown in environmental and social action.
In turn, the UK would remain dependent on gas and emit more CO2 than it can afford to.
Is the UK government planning to scrap the green levy?
No, there are currently no official plans of scrapping the green levy. Removing this tax was last discussed in 2022. However, the suggestion, which was backed by former PM Liz Truss among others, was not supported.
Do any other European countries have the equivalent of a green levy?
In France, consumers pay a public electricity service contribution. This charge supports renewable energy development and energy efficiency programmes. Similarly, Spain has a green levy on electricity consumption. And Denmark uses its green levy to support wind energy projects and research and development initiatives for renewable energy.
Summary
So, should we scrap the green levy? Considering that the loss of social and environmental programmes like ECO would lead to much higher costs and CO2 emissions in the future, we don’t think so.
The tax has been successful so far and while some programmes can be improved, it is an important way of fulfilling our social and environmental responsibilities.
At the same time, the green levy helps to secure our future energy supply by supporting renewable energies.
FAQs
What is the Green Fund Levy?
The Green Gas Levy (GGL), also known as the Green Fund Levy, is another green levy in operation in the UK which charges all licensed fossil fuel gas suppliers in Great Britain to pay a quarterly levy. The proceeds are used to fund the Green Gas Support Scheme with the goal of increasing the proportion of green gas in the energy grid.
Who benefits from the green levy?
The green levy benefits all of us by insulating homes, reducing CO2 emissions, and future-proofing energy supply. It supports vulnerable parts of the population with upgrading and insulating their homes, which can save hundreds of pounds in overall fuel costs.
What is the exemption for the green levy?
There are no exemptions for paying the green levy as part of the energy bill. For the GGL, there are exemptions for suppliers that can prove their total gas supply comprises at least 95% certified biomethane.
