New taxes to pay for environmental schemes are being considered as part of a deal to cut household energy bills, it can be disclosed.
The taxpayer would foot the bill for two of the “green” schemes, all of which are currently paid for through a levy on gas and electricity bills.
The major energy suppliers have repeatedly told ministers the levies are pushing up household bills – for which they and the Government have been severely criticised.
Senior Tories have held talks with the companies and believe they have secured agreement that if the largest levy, the Energy Companies Obligation (ECO), is removed, immediate cuts in prices of up to seven per cent would be announced.
A deal could be struck in time to be announced as early as next month, allowing an average saving of as much as £75 a household.
But Ed Davey, the Liberal Democrat Energy Secretary, said the green schemes had to stay – and signalled that they could be paid for through tax.
He told The Telegraph that he was happy to have a “debate” about how green energy policies were funded. He said: “We can maybe find there are other ways of paying for them. There may be ways and means.”
The move by the Lib Dems means that George Osborne will either have to raise taxes or find money to pay for the scheme, expected to cost £1.3 billion next year, from already under-pressure public funds through more cuts or borrowing.
In a significant intervention in the heated debate, Mr Davey also:
• Vetoed the Prime Minister’s own intention to review every green subsidy, saying that support for wind farms and other “renewable” energy systems would not be reconsidered;
• Refused to back down on support for wind farms, insisting that more onshore turbines would be “critical” for energy supplies;
• Said the wind farms, which have attracted huge opposition where they have been built or proposed, did not affect house prices;
• Attacked Right-wing Tories for “undermining consensus” on the environment;
• Said there has been “massive interest” in new licences for fracking and a review to be published on Monday will outline a revival in the North Sea oil industry.
The prospect of a tax to pay for green schemes emerged after the last Labour government introduced the current system of extra charges, which energy firms add to customers’ bills, known collectively as “green levies”.
The ECO charge pays for energy efficiency policies, such as loft insulation schemes.
Other levies subsidise wind farms and other forms of low carbon and renewable energy which are not economically viable in their own right.
The Big Six power firms, including British Gas and SSE, calculate that the green levies will add up to £112 to a typical household gas and electricity bill this year. They say the ECO charge adds £50 to an average domestic bill.
Currently, different energy companies charge customers between £45 and £75 as a flat-rate levy to pay for the initiative, which they are legally obliged to deliver.
The Coalition agreed to keep the charges in place as it sought to fulfil an early promise to be “the greenest government ever”.
However, a succession of above-inflation rises in gas and electricity bills has led to demands for a review.
Ed Miliband, the Labour leader, increased the pressure on ministers with his pledge to freeze bills for 20 months if he wins the next election.
Mr Davey said he would reconsider how the ECO scheme and the Warm Home Discount, which adds an estimated £11 to bills, were funded.
The ECO initiative costs an estimated £1.3 billion a year in boiler replacements and insulation, while the Warm Home Discount provides rebates of up to £140 to poor households at a total estimated cost of £1.1 billion. He said he accepted that the Eco policy could be more fairly funded if it were paid for from taxation rather than customers’ bills.
“Some of the fuel poverty groups have argued that and we should have that debate,” he said.
Critics are likely to warn that switching the cost of these measures from customers’ bills to taxes will simply “hide” the cost of green initiatives and not reduce the expense.
Government sources said that once a deal was struck to provide funding through taxes, ministers would seek to cut the cost of delivering the project.
Mr Davey also expressed concern at how the ECO charge differs between firms and has demanded personal meetings with energy executives, including Sam Laidlaw, the chief executive of Centrica, which owns British Gas, to press them to explain why their prices vary so widely.
“Some energy companies seem to be managing to do these relatively efficiently and cheaply,” he said.
“Others seem to be extraordinarily expensive. We are obviously asking questions.”
Senior Liberal Democrats believe that taking the cost of the ECO scheme off customers’ bills and on to taxes would be a “quick win” for the Coalition when the Autumn Statement is read next month.
Talks in the Coalition have not yet resulted in an agreed plan on how to reduce the cost to customers from green subsidies on power bills.
A Tory source said that while it could be fairer to pay for green energy schemes from taxes, this would not reduce the overall cost to families.
It would require more borrowing “or an increase in taxes”, the source said.
Tory ministers are pushing instead to delay the binding targets for the ECO scheme, which would “spread” the cost over an extra 18 months. This would reduce the impact of the policy, the source said.
However, Mr Davey appeared to rule out watering down the Eco scheme in this way. “There is no way I could support any move which undermined our effort on either energy efficiency or fuel poverty,” he said.
“We have got to help people with their bills. If we were to pull back on our ambitions for tackling fuel poverty and energy efficiency, we would actually be hurting people.”
Mr Davey also flatly rejected David Cameron’s policy of reviewing “every levy” that is added to customers’ bills, a plan which the Prime Minister reiterated last week.
“Let’s be clear, we are not reviewing those parts of the bills that support renewables,” Mr Davey said. These schemes, including “feed-in tariffs” which pay customers who generate their own electricity through solar panels or wind turbines, represent “a tiny part of the bill anyway”, Mr Davey said.
In fact, the country needed more wind turbines to play a “critical” role in supplying electricity to the National Grid in the decades ahead, he said.
In the interview, the Secretary for Energy and Climate Change also warned that there would be no “cap” on the number of wind farms built on the British mainland.
Along with nuclear power, solar energy, and a revitalised North Sea gas supply, they will help keep customer bills down and “cushion” the country from rising foreign gas prices in the decades ahead, he said.
Asked whether he was happy for the expansion of onshore wind to continue unrestricted, Mr Davey said: “It would be odd if central government said to a community, ‘You know what, you’re going to benefit from this, you’re going to get jobs from it, you’re going to get lower electricity bills but we are going to put a cap on it, you can’t have it.’ That would be rather odd.
“Onshore wind, if people follow the planning guidelines, if people can see the community benefits where people can have lower bills … onshore wind actually has a really central role to play.
Britain has a lot of wind. It’s our wind.
“We don’t have to import it. It’s clean.”
The minister has clashed with his Tory colleague, Owen Paterson, the Environment Secretary, over research commissioned by Mr Paterson’s department into the impact of wind farms on house prices.
Mr Davey’s department has been accused of trying to suppress the report.
However, Mr Davey insisted: “He hasn’t got such a report. There is a proposal for a joint Department of Energy and Climate Change/Defra report which will look at those issues. All the analysis we have ever seen is that it doesn’t impact [upon] house prices.”
He also disclosed that there was “massive interest” in the next wave of shale gas “fracking” licences, to be announced next year. Shale gas companies expect to drill 20 to 40 exploratory wells in the next three years, he said.
Mr Davey promised that a review of North Sea oil and gas production – to be published by the adviser Sir Ian Wood on Monday – would offer a “once-in-a-generation opportunity” to revive Britain’s offshore fossil fuel industry for the next 30 years.
However, he warned that even after implementing Sir Ian’s plans, Britain will still have to import a growing share of its gas.
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