Carbon price rebate plan ‘actively discussed in Downing Street’

Plans to introduce a carbon price that would raise domestic gas bills, though softened by a rebate scheme for poorer households, are being discussed at the highest level of government, according to reports.

Average bills would rise by between £80 and £170 a year, depending on how high the cost of carbon is set. Photograph: DKAR Images/Getty Images Average bills would rise by between £80 and £170 a year, depending on how high the cost of carbon is set. Photograph: DKAR Images/Getty Images

A Whitehall source told the Times that the rebate is “being actively discussed in Downing Street. It is still at a relatively early stage and the Treasury is likely to be resistant but it is a clear way of showing people that they are not bearing the brunt of net zero.” Average bills would rise by between £80 and £170 a year, depending on how high the cost of carbon is set.

Prime minister Boris Johnson has been resistant to the prospect of forging the path to net zero on the back of more expensive energy, fearing the electoral consequences. He told the Commons’ Liaison Committee on Wednesday that the government is “determined to keep bills low”.

“What we can’t have is a situation in which ordinary homeowners, ordinary people living in their own homes, are suddenly faced with an unexpected and unreasonable cost to put in a ground source or air source heat pump… We’ve got to make sure that when we embark on this programme we have a solution that is affordable and works for people,” he added.

Domestic heating is largely dependent on gas boilers, which must be eliminated long before the 2050 net zero deadline. But there is currently little incentive to switch to less carbon-intensive heat pumps as the electricity that powers them is relatively costly, partly due to the extra charges put on it to pay for decarbonisation policies. The imbalance with natural gas is due to be corrected in the forthcoming Heat and Buildings Strategy.

While the plan would make gas more expensive, it would be compensated by payments to low and middle-income families based on the amount raised from a broader emissions trading scheme. “Those who switched to cheaper green energy would still get the full payment, meaning they could pocket the difference,” the Times noted. It would therefore help meet Johnson’s promise to avoid distributing the costs of decarbonisation unfairly.

Neil Parish, the chair of the Commons’ Environment, Food and Rural Affairs Committee, said the “positive proposals” would underpin support for households, “whilst we tackle home emissions and transition to green energy sources. Such incentives will be crucial to meet our net zero ambitions”.

Hannah Dillon, head of the Zero Carbon Campaign said: “It’s fantastic to see such constructive engagement with the challenge of delivering an equitable net zero transition. As the costs of inaction mount, it is imperative that we implement progressive and effective policy solutions that protect ordinary people from unmanageable costs. A carbon price, accompanied by dividend payments, is exactly that.”

The rebate would be complimented by a boiler scrappage scheme, aping one set up by Labour’s London mayor Sadiq Khan some years ago, to limit upfront investment by householders. The Clean Heat Grant is expected to launch in April next year, offering £4,000 vouchers to offset the expense of cleaner heating.

A government spokesman said: “This government is determined to keep bills low. As we’re already doing through the Renewable Heat Incentive, Energy Company Obligation and upcoming Clean Heat Grant, we will use targeted measures to incentivise the people to switch to lower-carbon, more efficient heating systems, providing a transition that is fair, affordable and practical, whilst enabling them to save money long-term. More detail on our approach will be provided in the heat and buildings strategy this year.”

The proposals are inspired by a scheme established in certain provinces of Canada. Most of the proceeds from a federal carbon tax are returned to individuals, in the form of ‘Climate Action Incentive Paments’, with the rest going to the likes of schools, hospitals, small businesses, NGOs and supporting industrial decarbonisation efforts. Depending where they live, a family of four would expect to receive C$600-1,000 (£577-347) this year.

Last week, the Times reported that bills would ‘soar’ due to the anticipated extension of carbon pricing across much of the economy. While environment secretary George Eustice is resting doing so for agriculture, due to the impact on food prices, and Johnson wants to exclude petrol, the scheme would cover other sectors where emissions trading does not currently apply. For the first time, suppliers of products that emit greenhouse gases, such as natural gas and oil, would be required to buy emissions allowances.

The cost would be passed on to consumers, making renewable energy and technologies such as heat pumps comparatively less dear. Consultation on the proposals is expected to open before the COP26 climate talks this November.

Chris Venables, the Green Alliance’s head of politics, told ENDS that the proposals were, over all, “really welcome”. But he warned that extending emissions trading would be a complex task, while a blanket carbon tax would be “political folly”.

He indicated that the Heat and Buildings Strategy was being held back due to, “nervousness around what’s clearly a small, very small vocal minority on the costs of net zero”.

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