How the UK’s energy crisis mitigation policies might affect net zero targets

15 October 2022

Everyone worries about paying bills this winter but how we tackle the crisis on a country level has implications not only for the economy, but the environment too. Alongside the introduction of a price cap at the end of August, Liz Truss has also announced three other policies to help reduce the cost of energy: scrapping green levies, lifting the fracking ban, and giving permission for new oil and gas extraction in the North Sea. Although it is vital that energy prices drop, this article explores the ways in which the policies may affect sustainability and the UK’s target to be net zero by 2050.

Pen y Cymoedd Windfarm in Wales — source: Vattenfall

Green Levies

Truss has announced that temporarily, there will be no green levies on household bills, which will save around £150 for each customer per year.

When you pay for energy, it can be broken down into different costs, such as the wholesale cost (the price at which energy suppliers buy the energy), network cost (transportation of the energy), other direct costs (such as meter instillations), supplier costs (the money that goes towards suppliers’ profits), taxes, and social and environmental costs (green levies) which make up 8-12% of energy bills.

The money from green levies is used to fund energy projects such as wind and solar farms, as well as other environmental schemes. These schemes include the Local Authority Flex Scheme, the Green Homes Voucher, the Warm Home Discount, and the Energy Company Obligation, all aimed at providing low-income households with efficient heating and reducing fuel poverty. They also help in achieving environmental objectives as more efficient homes mean less energy used in total, which is important for reaching NetZero targets (for example, in 2016, 40% of the UK’s emissions came from households). Some people are therefore worried that removing green levies will harm the UK’s just transition - an inclusive and equal movement towards sustainability - while reaching net zero targets without these schemes is an equal concern.

However, Truss has stated that these environmental projects will continue, and that they will be funded through general taxation rather than green levies. This could make the schemes more equal since income tax is proportional to income, whereas the green levy - as a consumption tax – burdened everyone equally regardless of how much they earnt.

Oil and Gas Permits

Truss has also proposed over 100 new licenses for oil and gas extraction in the North Sea, which companies will be able to bid for. This is part of the UK’s plan to become a net exporter of energy by 2040, both to increase the country’s energy security and reduce reliance on imported energy making the country less vulnerable to international conflict such as the political turmoil linked to Russia’s invasion of Ukraine. Indeed, with more energy produced nationally, energy prices should decrease. However, it will not help the short-term crisis because the timeline from point of exploration to oil and gas reaching markets is 5-10 years.

This policy is unnerving for those committed to less fossil fuel use. But as Professor Myles Allen points out, extracting fossil fuels nationally is not necessarily worse than importing fossil fuels from abroad. He states that in theory, carbon capture technology could absorb the same amount of carbon dioxide that would be emitted from the new oil and gas sources, so there would be no overall increase in the amount of carbon dioxide in the atmosphere. However, using carbon capture technology for each unit of fossil fuel extracted would make these fuels more expensive. And as it stands, in the UK the cost of any energy type is based on the cost of the most expensive energy type, so if fossil fuel price rises further, then all energy costs will too, hence exacerbating the energy price crisis instead of relieving it. Therefore, it seems better to focus developing wind and solar power, because these energy types are cheaper to produce and – by virtue of being renewable - do not require any offsetting.

Lifting the Fracking Ban

Another way in which the government is planning to increase energy security is by legalising fracking. Developers are now able to obtain licenses to retrieve shale gas from underground. This is done by drilling holes into shale rock to reach tiny molecules of gas, and then sending sand grains and slick water into the drilled tunnels to fracture the rock in order to break it down, which forces the gas out of the ground.

One advantage of fracking is that it can be drilled for and sold within a matter of months, whereas offshore extraction, and other forms of energy production such as setting up wind and solar farms or nuclear plants take much longer. Other countries such as the US and Canada have generated significant proportions of their energy through fracking. However, the UK may not be able to rely on fracking in the same way, because estimates regarding how much available shale gas reserves there are remain uncertain, varying between 200 trillion – 2,285 trillion cubic feet. Moreover, the amount of shale gas reserves does not necessarily reflect the amount that can be used commercially.

One of the main concerns with fracking is that it is associated with earth tremors and in 2019, it was banned for this reason. The new legalisation does not sit well with anti-fracking activist groups, many of whom have already campaigned with success, leading up to the 2019 ban.

Furher, shale gas (also called natural gas) is composed mostly of methane, and many shale gas extraction facilities in the US have had major methane leaks from pipelines. Shale gas is sometimes seen as a transition fuel whilst we develop more renewables. However, methane has 80 times the global warming effect in the first 20 years after it is released that carbon dioxide, meaning that in the short term it is much worse for climate change.

Net Zero Concerns

The UK has pledged to become net zero by 2050, and more specifically, we are currently on the 6th carbon budget which aims to reduce emission by 78% by 2035, compared to 1990s levels. Truss states these targets will be reviewed to ensure they align with economic growth.

It is vital to continue our journey of national emissions reductions in order to mitigate the climate crisis. Removing green levies is not necessarily bad news if the schemes it funded are continued through general taxation, as Truss claims. However, the other two policies are a cause for concern due to increased emissions, including from methane which has a stronger effect on global warming than carbon dioxide.

Please share your thoughts with us and let us know what you think the UK should be doing to alleviate the energy crisis, while at the same time safeguarding our collective commitments to carbon emissions reduction and the path to Net Zero.

The energy and cost of living crisis is arguably the most prominent soicetal challenge since Covid. We strive to help you understand what is going on and how you can mitigate the impact of higher fuel bills. Read our explainer on why green energy prices are rising alongisde fossil fuels’, or about the impact of rising consumer prices on foodbanks and how you can help combat hunger.