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Environmental Levies

January 14, 2022
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By Paul Homewood

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With energy prices being in the news, I thought it time to update the Environmental Levies table, as published by the OBR in October 2021. These levies, apart from the gas levy, are all subsidies for renewable energy – all paid direct except for capacity market payments, which are paid to generators to provide standby for intermittent renewables; as such they are still regarded as part pf the cost of renewables, and therefore an indirect subsidy.

All the Environmental Levies are added to energy bills.

A few points to note:

  • Contracts for Difference payments are dependent on market power prices. As CfDs are guaranteed prices for renewable operators, the lower the market price, the greater the subsidy. Currently market prices are higher than the OBR assumed, so the subsidy is smaller.

However this is of no benefit to energy consumers, who are still faced with paying the same inflated price. A choice of being scalded or burnt!

  • There are two memo items – RHI are subsidies paid for renewable heat, but these are paid out of general taxation
  • The other memo item is the Climate Levy, some of which ends up in electricity bills.

The OBR expect subsidies to carry on increasing to £14.1 billion by 2026/27, plus £3.4 billion for RHI and CCL.

26 Comments
  1. Ray Sanders permalink
    January 14, 2022 5:31 pm

    2026/7 total subsidy comes in at £17.5 billion for an intermittent supply which is just shy of enough to fully fund 10 of these to be bought and paid for.
    “A Rolls-Royce led UK SMR consortium aims to build 16 SMRs – based on small pressurised water reactors – each with a generation capacity of 470 MWe. The consortium – which includes Assystem, Atkins, BAM Nuttall, Jacobs, Laing O’Rourke, National Nuclear Laboratory, the Nuclear Advanced Manufacturing Research Centre (Nuclear AMRC) and TWI – aims to complete its first unit in the early 2030s and build up to 10 by 2035. To minimise the construction phase of the programme, the UK SMR is fully modularised to enable the plant to be transported by road, rail or sea. Targeting a 500-day modular build, they say this concept minimises the onsite time and effort required to construct and build the plant. About 80% of the plant’s components will be sourced from the UK. The target cost for each station is GBP1.8 billion (USD2.4 billion) by the time five have been built, with further savings possible. The power stations will be built by the consortium, before being handed over to be operated by power generation companies.”
    https://world-nuclear-news.org/Articles/Rolls-Royce-secures-funding-for-SMR-deployment

    This would likely create in the region of 40.000 skilled jobs and open up an export market worth in the region of hundreds of billions.
    I just sort of think this might be a rather popular vote winning move.

    • Gamecock permalink
      January 14, 2022 6:34 pm

      “subsidy comes in at £17.5 billion for an intermittent supply”

      Whataboutery. Subsidies for renewables has FA to do with development of RR SMR.

      You assume the limiting factor for SMR is available capital. It’s not.

      • Ray Sanders permalink
        January 14, 2022 7:02 pm

        Well actually I am talking about opportunity cost. We could have opted to spend our money on reliable generation OR we could have chosen intermittent supply. No “whataboutery” – whatever such a trendy term is meant to imply – at all. It is all about simple economic choices.
        Nuclear works and is in reality inexpensive overall, renewables (excluding hydro electricity) simply do not. It is not difficult to understand Gamecock.

      • bill h permalink
        January 14, 2022 7:52 pm

        Indeed.

        RR were just handed around 500 million to (try to) come up with design!

        I am old enough to remember when the Nuclear mob were all about ‘economies of scale’. Howsaboutthatthen !

        Make sure your own backup system is installed, tried and regularly tested.

        Dark times ahead.

      • Gamecock permalink
        January 15, 2022 1:38 pm

        It’s even simpler to understand that there is no linkage between renewables and SMRs, no matter how hard you try to create one.

        The subject is renewable subsidies. Why are you trying to change the subject?

  2. Nicholas Lewis permalink
    January 14, 2022 6:04 pm

    Majority people ive spoke to have no idea at all how much cost has been loaded onto their bills by stealth over the last decade. Its also never ending level of increase despite we’ve been told renewables is more cost effective so bills should be going down ha ha. Oh we’ve got no wind again so the CCGT’s are busily pushing 21.5GW into the grid to keep the lights – happy to pay for that but not to line the pockets of the investors in these schemes.

  3. Gamecock permalink
    January 14, 2022 6:38 pm

    ‘all paid direct except for capacity market payments, which are paid to generators to provide standby for intermittent renewables’

    SO, that explains why the coal generators haven’t packed up their boilers and moved to São Paulo.

    • Ray Sanders permalink
      January 14, 2022 7:05 pm

      Well actually I am talking about opportunity cost. We could have opted to spend our money on reliable generation OR we could have chosen intermittent supply. No “whataboutery” – whatever such a trendy term is meant to imply – at all. It is all about simple economic choices.
      Nuclear works and is in reality inexpensive overall, renewables (excluding hydro electricity) simply do not. It is not difficult to understand Gamecock.

      • bill h permalink
        January 14, 2022 7:56 pm

        And how much Magnox and AGR waste is still sitting corroding in pools up at Windscale ?

        None of course ! We renamed it Sellafield, so it is all gone.

        Lol

      • Ray Sanders permalink
        January 15, 2022 12:15 am

        bill h would you like to explain your issues with the acknowledged world’s safest form of electricity generation – nuclear power – rather than making comments more worthy of the level of the Guardian website.

  4. Robert Christopher permalink
    January 14, 2022 6:58 pm

    It makes the Laws of Physics seem like a doddle.

  5. It doesn't add up... permalink
    January 14, 2022 8:07 pm

    Completely missing from the OBR analysis are UKA carbon allowances. About 80 million of these are auctioned per year currently, with prices having gone as high as £80/tonne of CO2, which raises some £6.4bn for the Treasury, while adding costs to coal and CCGT generators that depend on their effective emissions of CO2 per MWh. CCGT is the predominant price setter by being the marginal source of generation most of the time, and their costs are raised by about £30/MWh by the tax. That pushes up prices for the entire electricity market,and is therefore another back door subsidy to renewables not subject to CFD contracts.

    • Jordan permalink
      January 14, 2022 9:41 pm

      “raises some £6.4bn for the Treasury”
      … handy for the free leccy being doled out to those highly principled EV drivers.

    • Jack Broughton permalink
      January 14, 2022 9:44 pm

      I’ve heard that it takes an accountant to catch an accountant, so how has Paul missed this one?

      • It doesn't add up... permalink
        January 15, 2022 11:23 am

        It’s the OBR who missed it. Not even a footnote.

  6. cookers52 permalink
    January 15, 2022 8:55 am

    Another unintelligible government statement that makes it look as if someone knows what’s going on.

    Whenever I read such stuff I know a failure of oversight and governance is much more likely.

    Cock up is the likely outcome.

  7. Phoenix44 permalink
    January 15, 2022 9:05 am

    So around £370/household last year. Add in the balancing mechanism, carbon allowances and the distortion to the markets that allow back-up power to charge what it likes and maybe £500/household.

    So we all pay £500 more for something less reliable. The very definition of being poorer.

  8. John Cullen permalink
    January 15, 2022 9:33 am

    Hello Paul,

    When you included the “2.7 Environmental levies” table in one of your posts about 10 days ago, I commented that I could not find it despite quite a lot of searching then and subsequently. I have just tried again to find it but without success. Please could you give a more complete link or reference? Thank you.

    Regards, John. (P.S. Sorry if I am still being dim.)

    • Jordan permalink
      January 15, 2022 11:39 am

      I cannot see it either John. Table 3.4 (Current receipts) in the OBR seems to come close, and picks up a point raised by IDAU about the cost of the UK Emissions Trading Scheme. The following is from the Year 22/23 Forecast column:

      Climate change levy 1.9 bn
      Environmental levies 9.2 bn
      Emissions Trading Scheme 4.9 bn

      That’s a total forecast £16 bn.

      I believe the 22/23 is the first to pick up the increase in costs of Emissions Allowances, although it will fall short of the prices we are experiencing at the moment as IDAU notes. The impact will take about a year to hit the reported numbers as the OBR says this in paragraph 3.41:
      “The first UK Emissions Trading Scheme (ETS) auction took place on 19 May 2021, meaning this is the first forecast using outturn data for the UK carbon price. Receipts are recorded in the public sector finances when the allowances are surrendered rather than when they are purchased, meaning that revenues increase sharply from 2022-23 onwards…..”

    • January 15, 2022 4:39 pm

      Hi John

      This is the link:

      https://obr.uk/efo/economic-and-fiscal-outlook-october-2021/

      You then scroll to the “Supp Fiscal Tables – Receipts”

      Then its table 2.7

      • John Cullen permalink
        January 15, 2022 6:43 pm

        Thanks, Paul. Very helpful. They hide it well – is that deliberate? I had previously looked for the elusive table in several of the ancillary documents in your link but, unfortunately, I had not looked in the correct one.

        Regards, John.

  9. It doesn't add up... permalink
    January 15, 2022 11:55 am

    I downloaded the report from the link. It includes the following paragraph on oil and gas

    Oil and gas receipts have been revised up from our March 2020 and March 2021 forecasts
    for all years from 2021-22 onwards. Relative to March 2021, the upward revision averages
    £1.4 billion a year. This is almost entirely explained by higher oil and gas prices. Our
    forecast for gas prices is based on futures prices over the 10 days to 15 September. Since
    then, oil prices have risen by 4.7 per cent while gas prices have soared 65.7 per cent. All
    else equal, this would add £2.3 billion to receipts in 2022-23, but only £1.2 billion by
    2026-27, reflecting the sharply downward sloping forward curve for gas prices.

    So that’s an additional £3.7bn of windfall tax on oil and gas, as at October.

    I suspect you will find the table in the spreadsheet on supplementary detail for receipts.

  10. John Cullen permalink
    January 15, 2022 10:23 pm

    Paul, as an electrical engineer please may I ask a dumb accountancy question? Why are the Environmental Levies recorded under Receipts rather than under, say, Expenditure. The current nomenclature seems to suggest a money flow in the opposite or wrong direction if in reality the public is paying the renewables industry. Regards, John.

    • Nicholas Lewis permalink
      January 16, 2022 10:22 am

      Technically thats what we pay through our energy bills ie a hidden tax for the government to then recycle back to their city mates who invest in guaranteed can’t lose wind and solar scams.

      • John Cullen permalink
        January 16, 2022 11:31 am

        Nicholas,

        Thank you for that clarification. It is as I expected. However, does the government actually disburse the Receipted funds exactly in the quantities stated in ‘Table 2.7 Environmental Levies’ above? Are they adding or subtracting significant sums when forwarding our money to their city friends? In short, is Table 2.7 just a rough but convenient approximation to the true subsidies doled out, a truth that is better captured by Paul’s later (15th January) posting?

        Regards,
        John.

      • It doesn't add up... permalink
        January 16, 2022 12:32 pm

        There are assorted intermediary quangos for the different subsidies. CFD payments are collected from electricity suppliers/retailers by the Low Carbon Contracts Company and its subsidiary EMR Settlements, who dole them out to generators. ROCs can be purchased directly from generators, but are also purchased on a cashout basis from OFGEM, who run the accounts on how many ROCs should have been purchased by suppliers and ensure compliance. The fortnightly auctions for CO2 allowances are run by the ICE futures exchange, who pay over the proceeds to the Treasury. There is separate accounting of how many allowances emitters are supposed to acquire (emitters include airlines and parts of industry, not just generators), which goes via submissions to BEIS. All quite Byzantine.

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