The government has ditched the controversial ‘hydrogen levy’ following pushback from the energy sector.
The proposed tax, which would lumber households with a further £120 charge on top of their near-record energy bills to pay for hydrogen production, has been shelved by energy secretary Grant Shapps.
He tabled an amendment yesterday to the upcoming Energy Bill, which would prevent it being paid for via energy suppliers and their customers.
Instead, it will be levied on the gas shipping industry, the government has confirmed, and will take effect in 2025.
Shapps had previously signalled in June that a rethink on the levy was imminent, confirming to The Telegraph he did not “want to see people’s household bills unnecessarily bashed” to fund hydrogen generation.
Downing Street is targeting 10GW of hydrogen production by the end of the decade as part of its energy security strategy.
Hydrogen, produced through electrolysis with water, is seen as having a key role in cutting carbon emissions in heavy industry and freight, alongside potential viability for long-term storage.
Right-leaning think tank Onward first calculated the levy would add £118 to energy bills by the end of the decade.
Jack Richardson, Onward’s head of energy and climate, said: “Dropping the hydrogen levy is the right decision to maintain public support for net zero and deliver politically sustainable funding for the industry. Hydrogen will be a crucial part of the mix but probably not for home heating, so it would be unfair to directly raise household bills by up to £120 from 2030 to pay for it.”
News of the levy being scrapped comes as the energy industry debates the future of green heating, with gas giant Cadent raising doubts over the capability of heat pumps to meet customer demand at a viable price.
It calculated up to half the UK’s housing stock can be reheated through repurposing the country’s gas infrastructure for hydrogen.
“If there is an opportunity to support a third solution of hydrogen that is viable and is easy for consumers to access, I think that’s really important,” Angela Needle, director of strategy at Cadent, told City A.M.
The government is currently targeting 600,000 heat pump installations on an annual basis by 2028, with just 33,000 installed last year.
But Clem Cowton, director of external affairs at Octopus Energy, considers the target achievable.
“As all independent studies tell us repeatedly, hydrogen boilers will never be a viable option – they require six times as much energy as heat pumps, and it would cost tens of billions of pounds to dig up and replace the pipes,” she said.