Britain can’t drill its way out of this oil shock – here are five better ideas
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4 min read
Since the beginning of the war in the Gulf, gas prices have risen over 80 per cent and petrol and diesel prices have hit eye-watering highs.
It’s the second inflationary oil price crisis in four years. As the public calls for more action, this is the moment for the government to accelerate efforts to build an electrified economy. It must challenge those calling for more oil and gas drilling to solve this crisis, as it will only drill us deeper into a hole we should be trying to extract ourselves from as fast as possible. Issuing new licences for North Sea oil and gas production will not bring down household bills or increase our energy security, and it will undermine ambitious action to reduce the impact of climate change.
There are five ways the government could save us from the rollercoaster of oil and gas markets.
The first is to protect the most vulnerable with a social tariff. During the last fossil fuel price crisis, the government provided universal household energy bill support, costing taxpayers upwards of £35bn. That level of support just isn’t feasible now. Any help should be targeted at the lowest income households. The current £150 Warm Homes Discount hasn’t kept pace with inflation and doesn’t flex in a crisis. A unit rate social energy tariff instead would insulate the lowest paid.
Second, the government should fast track affordable finance for clean technologies. The Warm Homes Plan promised zero and low-interest loans for technologies like solar panels, batteries and heat pumps, giving people more control over their energy use and costs, while reducing the UK’s exposure to imported gas. Ministers should urgently fast track the promised £5.3bn Warm Homes Fund to kickstart a boom in projects this summer.
Third, all policy levies should be removed from bills. This is a clear win-win for the government, incentivising the shift to tech like heat pumps and electric vehicles. The Chancellor has already moved 75 per cent of the Renewables Obligation (which has supported the construction of renewable energy projects) from electricity bills. Green Alliance analysis shows that moving feed-in tariff levies and the remaining 25 per cent of the Renewables Obligation into government spending would reduce a typical household bill by £45 a year, at a cost of £1.6bn a year. If all policy costs on electricity were moved onto government spending, it would cost £2.8bn a year and reduce a typical bill by £80 a year.
Fourth, VAT should be cut for public electric vehicle (EV) charging. EVs save drivers hundreds of pounds a year in running costs and their uptake is growing. The Chancellor could further boost demand by cutting VAT on public EV charging from 20 to five per cent, in line with the rate for home charging. This will make the benefits of switching to an EV available to everyone, not just those with access to a driveway.
Finally, fifth - gas and electricity pricing should be decoupled as far as possible. Britain is delivering one of the world’s fastest expansions of renewables and set a record for wind generation at the end of March. But consumers are not seeing the benefit because the high price of gas sets the market price around 85 per cent of the time, inflating bills.
Wind power has already cut at least £104bn from energy costs in the UK since 2010, and there is huge potential to bring prices down further by decoupling the electricity price from gas. Gas could be taken out of the market and into a strategic reserve that the system operator Neso determines when to use. This could cut up to £65 a year from household bills by 2028.
Whatever the government does, it should be done fast to limit the impact of this oil and gas crisis, control the cost of living and shield us in an increasingly unpredictable world.
Nick Davies is head of climate policy at the think tank Green Alliance
