Hydrogen levy on consumers scrapped to mitigate rising energy costs

The UK government has decided to abandon the proposed ‘hydrogen levy’, which would have added an additional £118 charge to household energy bills to fund hydrogen production.

Energy Secretary Grant Shapps announced the decision, stating that the levy will instead be imposed on the gas shipping industry starting in 2025.

The move comes after significant pushback from the energy sector and concerns about increasing household bills. However, the government aims to achieve 10GW of hydrogen production by the end of the decade as part of its energy security strategy. Hydrogen, produced through electrolysis with water, is viewed as crucial in reducing carbon emissions in heavy industry and freight.

Jack Richardson, head of energy and climate at the Onward think-tank, which first calculated the £118 figure, 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.”

David Cowdrey, Director of External Affairs at the MCS Foundation, said:

“The scrapping of the hydrogen levy is a very welcome step towards affordable and clean energy for all. The levy would have been a regressive extra tax on already-struggling households, and would have hampered the race to get renewable energy in every home.

“We now need the government to take the next step towards fair electricity pricing by decoupling its costs from gas. Doing so would cut electricity bills in one stroke, and help more households switch to heat pumps by making them cheaper than gas boilers to run.”

The Energy Bill will still need to go through the House of Lords, but with peers having previously voted to remove the hydrogen levy and all parties now opposed to it, it is expected that the hydrogen levy will not be introduced.