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Introduction of Green Gas Levy

  • United Kingdom
  • Energy and infrastructure - Clean energy

30-09-2020

On 22 September 2020, the UK Government published an open consultation outlining their intention to introduce a Green Gas Levy.

The money collected would be used to fund the Green Gas Support Scheme, outlined in an earlier government consultation in April 2020, to fund green gas (biomethane) injection into the grid, resulting in a reduction of carbon fossil fuel heating. The decarbonisation of heating is one of the most prominent issues faced by the UK in achieving its 2050 climate targets. Biomethane is renewable and virtually carbon neutral therefore, would directly contribute towards the UK meeting their legally binding targets.

Introduction of the levy

The levy is expected to launch in Autumn 2021 with the first collection being made in April 2022. The income would directly support the injection of biomethane into the grid which is expected to result in a 21.6MtCO2e saving over the duration of the scheme. Additionally, the finance will ensure the buoyancy of the biomethane industry within unprecedented times and allow for job stability in the market.

Rolling out the levy

The levy would apply to all licensed gas suppliers. Gas suppliers would be accountable to make payments if they supply any form of fossil fuel gas (without exemptions for carbon offsetting). It is expected that the suppliers will pass the cost of the levy on to their customers in both the domestic and non-domestic sectors. The levy would initially be implemented using a flat rate approach with the intention being that by 2024/2025, there would have been a transition to a volumetric approach.

Flat rate approach

The original application would see that the levy is applied to gas suppliers dependent upon how many gas meters they serve with each meter point being levied at the same amount per day. The amount per meter would be set in advance and the supplier would be billed quarterly with the value of their payments considering the levy rate and the number of meter points which they serve. The initial flat rate approach would allow for a fast implementation, a high degree of financial certainty for both suppliers and their customers and the amount would not be subject to change in gas demand caused by market shocks.

Impact on bill payers

It is expected that the financial impact on bill payers will remain relatively minor. Under the flat rate approach, projected figures outlined in the consultation document, show that domestic customers would likely see a 1% increase to their gas bills with non-domestic customers experiencing a less than 0.5% increase.

The flat rate approach would result in the levy amount being split by the supplier between all of their customers equally as opposed to being dependent on each customer’s usage. Although this approach would ensure fairness across the board, it may, in turn, disadvantage domestic customers or smaller non domestic customers who have a relatively small gas usage.

Financial Management of the Levy

The implementation of the levy would be overseen by Ofgem who would manage the collection of the money, in turn, distributing it to biomethane producers. The gas suppliers would be alerted to the upcoming levy rates three months in advance with payments expected to be made quarterly. The government also understands the need for strict budget caps, ensuring that bills do not rise unexpectedly. The government intends to publish the maximum amount which can be collected in one year or a maximum levy rate to ensure certainty for all involved.

Green Gas Support Scheme

Upon receipt of the levy Ofgem would be responsible for distributing the funds to biomethane producers who have injected into the gas grid in the previous quarter. To be eligible to receive funds raised via the levy, biomethane injectors will be required to make quarterly submissions at a fixed date during the quarter. Ofgem would then be required to confirm these submissions and then make the appropriate payments.

This process, which requires a biomethane producer to make quarterly submissions, represents a change from the process used for the Non- Domestic Renewable Heat Incentive where meter reading submissions due dates are dependant upon registration or commissioning dates of each plant. This change has been introduced as a result of this income being received as a levy as opposed to Government funding. The Government is keen to receive feedback on this change of approach as part of the consultation.

The consultation is only applicable to England, Wales and Scotland (not Northern Ireland) and closes on 2 November 2020.

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