by Ross Clark - Wednesday, 29th October 2008 -

I despair. A tired government that thinks the rest of us are a bunch of complete idiots is toying with the idea of slapping a windfall tax on energy companies.

Fair enough, wholesale oil and gas prices are high, and companies like BP have been doing rather well this year. But perhaps we should dig just a little deeper into the reasons for soaring energy bills.

One only has to visit the website of the government’s energy regulator, Ofgem, to see what else is driving up energy costs.

Let’s pass over the five per cent VAT on energy bills, and the fact that 70 per cent of the cost of road fuel is tax of one sort or another. A huge slice of the rise in energy bills this year is down to new environmental regulations that the government has imposed on energy companies.

On January 1 this year, the second phase of the European Union Emissions Trading Scheme (EUETS) came into effect – obliging businesses to buy permits for carbon emission.

Energy companies, needless to say, have passed the costs on to their customers. Ofgem calculates that this has added an average of £31 to domestic energy bills this year alone. It doesn’t say how much has been added to energy bills for small businesses, but we
can safely assume it will be a lot higher than that.

Then there’s something called the Carbon Emissions Reduction Target (CERT), introduced on April 1 this year, which obliges energy companies to subsidise – to the tune of £1.5bn over three years – the installation of insulation and more energy-efficient appliances to poor and elderly customers.

The cost, of course, will be passed on to customers – allowing the government to spend money on the poor without the expenditure actually appearing on their books. CERT, says Ofgem, will add an average of £38 to domestic bills this year, though few customers
will be aware of what is going on.

Then there’s the Renewables Obligation (RO), which forces energy suppliers to buy ever-greater proportions of their energy from wind farms and other renewable sources. This year, says Ofgem, the RO will add an extra £10 a year to average electricity bills.

Regulations demanding that gas companies reduce the pressure in their mains for safety reasons has added a further £11 to bills.

Put it all together, and the government is directly responsible for rises of £90 – around ten per cent – in average energy bills this year. Yet far from attempting to justify this hike in costs, ministers go around blaming everything on greedy energy suppliers, using rises in bills as an excuse to extract even more taxation from business.

The real winners from the boom in energy prices are not oil and gas companies, but pettifogging bureaucrats who are paid handsome salaries for administering all these new targets and obligations.

Don’t expect the environment to benefit, either. The first phase of the EUETS, in which polluters were given carbon credits based on their existing emissions, fell apart as the price of the credits collapsed. But not before we had to witness the absurd spectacle of NHS hospitals having to buy credits from oil companies which had managed
to negotiate themselves overly-generous allowances of credits.

The only way that customers will ever be made aware of the costs of regulation is if businesses start to break down their bills to make it obvious what is driving up prices.

How about we include a basic price for the goods or service we are providing, plus a “nosey government inspector supplement”, a “petty regulation charge” and a “public sector fat-cat contribution”?

At least no one would be under any illusion as to why prices are going up.

Picture: source