Who Pays? Consumer Attitudes to the Growth of Levies to Fund Environmental and Social Energy Policy Objectives Prashant Vaze and Chris Hewett About Consumer Focus
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Who Pays? Consumer attitudes to the growth of levies to fund environmental and social energy policy objectives Prashant Vaze and Chris Hewett About Consumer Focus Consumer Focus is the statutory Following the recent consumer and consumer champion for England, Wales, competition reforms, the Government Scotland and (for postal consumers) has asked Consumer Focus to establish Northern Ireland. a new Regulated Industries Unit by April 2013 to represent consumers’ interests in We operate across the whole of the complex, regulated markets sectors. The economy, persuading businesses, Citizens Advice service will take on our public services and policy-makers to role in other markets from April 2013. put consumers at the heart of what they do. We tackle the issues that matter to Our Annual Plan for 2012/13 is available consumers, and give people a stronger online, consumerfocus.org.uk voice. We don’t just draw attention to problems – we work with consumers and with a range of organisations to champion creative solutions that make a difference to consumers’ lives. For regular updates from Consumer Focus, sign up to our monthly e-newsletter by emailing [email protected] or follow us on Twitter http://twitter.com/consumerfocus Consumer Focus Contents Executive summary .................................................................................................... 4 1 Introduction .............................................................................................................. 8 Background ............................................................................................................... 8 The big challenges of the energy policy debate ................................................. 8 Research objectives of the Who Pays? programme .......................................... 9 2 Studies commissioned by Consumer Focus .................................................. 10 3 Policy context and existing studies .................................................................. 15 Current situation ..................................................................................................... 15 Previous work ......................................................................................................... 15 4 How much do consumers and taxpayers currently pay? ............................ 18 Consumer levies – past, present and future ...................................................... 18 The three decades ................................................................................................. 20 Trends in consumer funding over the three decades ....................................... 23 5 Consumer attitudes to environmental and social levies .............................. 25 Question 1 – Is the public willing to pay environmental and social levies on energy bills? ................................................................................ 26 Question 2 – What should be the priorities when using the revenues? ........ 33 Question 3 – Is the balance of contributions between consumer, energy companies and tax-payer right? ............................................................ 39 Question 4 – Who are the winners and losers? ................................................ 40 Bibliography ............................................................................................................... 46 Glossary ...................................................................................................................... 47 Annex 1: Methodology of Accent Deliberative Research ................................ 48 Annex 2: Methodology of MVA Stated Preference research ........................... 53 Who Pays? 3 Executive summary This report synthesises findings from four research Achieving environmental and social projects that comprise Consumer Focus’s Who outcomes Pays? programme. These four projects collectively Since the 1990s funding of environmental and detail energy customers’ historic and future social programmes has shifted away from financial contributions to energy policy goals subsidising nuclear decommissioning liabilities to and their views about having to make these funding programmes to install energy efficiency, contributions. The research made use of actual renewable energy and support for the fuel poor. and proposed UK schemes on energy efficiency, By 2020, there will have been substantial growth low carbon generation and social tariffs. in the amount of customer levy funded support relative to 2000. Policy makers face some major challenges in the energy market today. These four reports develop Customers broadly support this agenda of information on the customers' perspective on support for vulnerable customers, renewable these challenges. energy and energy efficiency. Most people either support, or see as inevitable, the building of new ● Achieving environmental and social nuclear, but there is little support for its subsidy. outcomes: What are customers’ views on how best to decarbonise our energy system and Consumers’ views on energy are not uniform and address affordability? can also be quite nuanced. The public would ● Fairness and efficiency: What is the fairest like to see more support for vulnerable groups way to collect the costs of capital investment especially households with older or disabled and government programmes from customers, members. There is less support for subsidising shareholders and taxpayers? young families, people on low incomes, or ● Trust: What would be the best way to establish those who are unemployed. There is inherent trust in the energy market? support for renewable energy and this support strengthens after consumers have been through Engagement: What is most likely to drive ● the deliberative workshop process; where they customer engagement in the energy market? are provided with information about the different ● Affordability: What can the Government do generation technologies. Consumers support about fuel poverty? subsidies for specific technologies like off-shore and to a lesser extent on-shore wind and are While the Who Pays? programme did not set out interested in seeing the money being spent to provide all the answers to these challenges, it cost effectively. There was less support for on- has provided useful evidence which Consumer shore wind in Scotland where the technology Focus believes should steer policy in some clear is more prevalent than in Wales and England. directions. There is support for community energy schemes – but there remain doubts, especially for urban We summarise our findings as follows. customers, about whether this is a viable option in their area. Consumer Focus 4 Views on customer bill financed energy efficiency There was mixed evidence about whether are mixed: a warm home is regarded as a customers supported an increase in the amount basic right and subsidies to the fuel poor were that they should contribute – the online vote and supported. This is not true of subsidies for high private digital vote suggested an acceptance, cost measures like solid wall insulation that will be but the deliberative workshops suggested there supported through Energy Company Obligation were significant affordability issues for many. The (ECO) or for high cost renewables like solar PV online research provided customers with some on homes. A prevailing question was why should contextual information on renewable energy, energy customers, in general, support such energy efficiency and affordability before they were improvements that accrue to the few, especially asked to choose between energy plans. People’s the affluent few? willingness-to-pay increased with their income and the amount of energy they consumed, suggesting Fairness and efficiency that a more progressively structured levy would also be more acceptable to consumers. Currently, social and environmental levies are around 7 per cent of the average bill, broadly at the same levels as they were 20 years ago. In There was substantial hostility to the carbon floor the decade 2000 to 2010 the share of funding price and auctioned European Union Emissions through bills fell and the proportion funded by the Trading Scheme (EU-ETS) revenues being tax-payer rose. The current policy is to greatly retained by Government. Consumers regarded increase the customers’ contribution to costs these as ‘stealth taxes’. There was clear public through the introduction of ‘carbon taxes’1 and support for these tax revenues to be used to pay increase the share of electricity generation that for some of the energy challenges. is aided by a price support mechanism. Since the liberalisation of the energy markets in the Overall consumers believe more of the money late 1990s there is no mechanism to control or being raised from consumer levies needs to be regulate the amount of profits being earned by devoted to supporting vulnerable groups. This generators or suppliers. Price regulation only could be done by broadening the reach of the exists in the monopoly network businesses. Warm Home Discount (WHD), or by ensuring more of the energy efficiency investment is Both of the consumer research projects revealed targeted to the homes of the fuel poor. Structuring people’s acceptance of customer levies, the levies in a more progressive way would also particularly when presented alongside the social be popular. Allowing companies to pass on the and environmental benefits they will deliver. But levies as a flat rate to all consumers is the least people see it as crucial that companies