Should Subsidies for Renewables be Paid out of Central Taxation?

Energy bills have been rising since 2005 which means that in the United Kingdom people are paying more and more each year for their electricity, gas and heating oil. The rise has been exacerbated by the government imposing levies on energy bills to pay for things like wind turbines and photovoltaic electric solar panels. Now it is being suggested that instead of the renewable subsidies being paid out of levies on electricity bills, they should be paid out of central taxation. Is this suggestion the right way to deal with subsidies for renewables.

There are many subsidies for fossil fuel energy, some hidden, and some very transparent and it seems that there will always be some kind of subsidy or other for all types of energy. Renewables need subsidies to compete on a level playing field.

Recovering the subsidy from energy bills, including household energy bills, is right in principle; one principle of energy use is that the polluter must pay for the consequences of his or her pollution. Adding a charge which is being used to subsidise clean renewable energy accords with this principle, but it does disadvantage the poorer people and those in fuel poverty, who are least able to afford that charge.

It is important that we do not abandon a principle of the polluter paying. You should not swerve around a principle because it has inconvenient results, but must look for ways of adhering to the principle but preventing undesirable results.

In the case of energy bills, the solution is simple. We must invert the present pricing system Instead of charging consumers a standing charge and a higher chare for the first units of energy use, reducing as the consumer consumes more energy, we should require energy companies to charge for the first slice of energy usage at rock bottom rates, and incrementally increase charges for each subsequent slice of units consumed.

This would assist those in fuel poverty, and would help the poor, who would be guaranteed some basic energy at low prices. For everyone else, it would encourage less energy use, because people would try and consume as little energy as possible to avoid the higher rates of charge.

This system, if adopted, would enable the polluter to be charged for his or her pollution and would avoid the renewable subsidies being paid out of central taxation.

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