These price impacts were deliberately omitted from the 2014 issue of Estimated Impacts of Energy and Climate Policies on Energy Prices and Bills, in spite of their obvious importance and the fact that they had appeared in all previous issues of Estimated Impacts, as discussed in a previous REF blog.
The price impact tables have been usefully released as a spreadsheet annex to the 2014 document titled Supplementary tables - Prices and Bills 2014.
The price impacts are reported as a percentage increase over the price that would apply if there were no climate change policies, and these predicted prices depend heavily on future prices for fossil fuel, so DECC has provided calculations assuming a range of potential fossil fuel prices in 2020 and 2030 labelled ‘Low’, ‘Central’ and ‘High’. Consequently, these are complex tables that require careful reading, but even a quick glance reveals their significance, as a few selected figures will indicate.
For example, green taxes are estimated to add £52/MWh to 2020 electricity prices for domestic households in the central fossil fuel price scenario (or a 37% price increase on the price without policies), up from £49/MWh or a 33% price increase over prices without policies, as reported in Estimated Impacts 2013.
If fossil fuel prices are at the low end of DECC’s predictions in 2030, policies are estimated to cause a 60% electricity price increase for domestic households, as compared with prices without policies.
These are serious effects, but the impacts on industrial and commercial consumers are extremely severe, and give even deeper cause for concern. In the Central fossil fuel price scenario for 2020, low carbon policies will result in a 50% electricity price increase for small businesses. In the Low fossil fuel price scenario for 2020, low carbon policies will cause a 77% price increase for medium-sized businesses with obligations under the Carbon Reduction Commitment (CRC), and this would rise to 114% in 2030.
In this context it is important to remember that energy price increases for industrial and commercial consumers will necessarily be passed through to domestic households in the costs of goods and services, giving a much greater total cost of living effect than that found in the household energy bill alone.
Furthermore, energy cost increases will also affect households by exerting a downward pressure on wages and on rates of employment (i.e. as energy costs for businesses rise they will try to hold wages down and will employ fewer people).