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Green subsidies

Green energy subsidies

If you pay an energy bill, you're paying into the government’s green subsidies. Find out what you're paying for, and how much.

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Green subsidies are often blamed as one of the reasons behind high energy bills. We tackle what green subsidies are and exactly how much extra you have to pay on your energy bill because of them.

What are green subsidies?

Green subsidies, also commonly referred to as green levies, green taxes or carbon taxes, are the government’s way of making Britain a low-carbon economy.

As the majority of us get our energy through energy companies, the government is paying for a raft of green measures through a levy on domestic energy bills.

The levies support home upgrades, expanding low-carbon forms of power generation and offer support to those suffering from fuel poverty. The key components are:

  • The Renewables Obligation (RO) The RO is a requirement for the UK’s energy suppliers to source a percentage of their energy from renewable energy. To pay for new renewable generation the costs are added onto household bills.
  • Feed-in Tariffs If you produce your own electricity through solar panels or wind turbines, your energy company may pay you money to do so, or pay you more money if you feed the energy back into the National Grid.
  • Energy Company Obligation (ECO) If you come from a low-income household your energy company will offer you support to install expensive insulation upgrades.
  • Warm Homes Discount Likewise, energy companies will offer help to low-income households to pay for their heating.
  • Emissions Trading Scheme and Carbon Price Floor These are taxes on fossil fuel generation and a minimum price for trading carbon, again, designed to encourage energy companies to source their energy from low-carbon sources.

These measures are all entirely unique and far more complicated, so you can read more about them elsewhere, like on our dedicated feed-in tariff guide page.

Why do green taxes exist?

The green subsidies can broadly be divided into two groups: those designed to make us less dependent on fossil fuels and those designed to help low-income households.

The main impetus for making us less dependent on fossil fuels has come from global warming and agreements within the EU and internationally that a ceiling should be set on greenhouse gas emissions.

The government’s current aim is to reduce the UK’s greenhouse gas emissions by 80% below 1990 levels by the year 2050.

Since most of our energy currently comes from fossil fuels, that means changing where we get our energy from.

Measures like ECO and the Warm Homes Discount on the other hand are designed to ensure that the benefits of having a low-carbon home are shared across the population, not just by those who can afford the energy-saving upgrades.

The key thing to keep in mind is that these measures cost your energy supplier money, and this has to be paid for. The way they pay for it is by adding on a percentage of the cost to household bills.

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How much do they add to energy bills?

Government announced plans in January 2017 that it would slash green levies on bills, which were stated at that time to add around £110 per year to a household's costs.

What are the benefits of green subsidies?

Crucially, the government claims that without the green subsidies, energy bills in the long run would go up even more, as the cost of wholesale fossil fuels continues to grow.

What’s more, by paying toward green subsidies we are reducing the carbon footprint of the UK, and helping low-income homes benefit from energy-saving measures, so they don’t get left out in the cold — literally.

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Why pay more for the same energy?

Find and switch to a better energy deal in minutes