Distributional Impacts of UK Climate Change Policies

Author:

Ian Preston

Vicki White

Pedro Guertler

Organisation:

Centre for Sustainable Energy (CSE)

Association for the Conservation of Energy (ACE)

Date: 2010
Location:

Rationale

In 2009, the UK government introduced the Low Carbon Transition Plan (LCTP), which mapped out how the nation would move towards a renewable-energy-based and low-carbon system. While this programme offered the prospect of a significant improvement to the nation’s housing stock, it was unclear what obligations the domestic sector would have in meeting the financial liabilities for implementing this strategic vision. A proper assessment of the resources needed to fulfil the policies, alongside an evaluation of how the costs could be distributed, was essential.

Key research Question

The research sought to model the costs and benefits of delivering the targets set out in the LCTP, which would enable a fuller understanding of the amount and type of investments required, how these could be funded and what impact these could have on domestic households in terms of both the technical infrastructure and the financial commitments it may demand. In addition, it aimed to identify which of the variety of options would represent the most equitable solution for households.

Summary of activity

The CSE’s Distributional Impacts Model for Policy and Strategic Analysis tool was used to calculate the likely costs and benefits of implementing a range of policies (both individually and in a variety of combinations). This included the effect of various practical mechanisms (e.g. more insulation), strategic decisions (e.g. whether to place the costs on consumer bills, suppliers, general taxation or elsewhere) and the role that indirect factors, such as rising fuel prices, might play.

Methodologies

Secondary data

Findings

The modelling suggests that cost recovery through consumers’ energy bills is likely to add £103 to the average bill by 2020. Using income tax to fund measures would add slightly more on average, but this would be more fairly distributed, so that better-off households would pay a greater share and low-income households less.

Recommendations

In order to ensure that future energy bills do not have an unfair impact on those least able to pay, the cost should be fairly spread across fuel types. For example, low-income households rely disproportionately on electricity to heat their homes.
The implementation of energy efficiency measures should take account of household characteristics, with grants and subsidies made available to low-income households.
The cost ‘pass-through’ system should be graded, so that those who consume most pay more. The structuring of such systems should not be left to energy suppliers; the government and regulators must play a role in ensuring that fairness is built in. This could include a ‘protected block’ tariff.

Other themes