Government Shifts Hydrogen Tax Burden From Households to Gas Shipping Companies

A tanker heads out to the channel in Rochester, England, ahead of the first gas shipment of LNG from Australia to Europe in more than half a decade, on Aug 22, 2022. Dan Kitwood/Getty Images

Ministers have scrapped the consumer “hydrogen levy” and have instead vowed to tax gas shipping companies instead, under the government’s net zero plans.

On Thursday, the government rolled back on using a household tax to pay for hydrogen production, instead shifting it to the gas shipping industry.

The announcement follows Claire Coutinho being named as the UK’s new secretary for energy security and net zero after Grant Shapps was appointed defence secretary.

Funding the new hydrogen industry is seen as key to the UK’s plan to decarbonise all sectors of the economy by 2050.

Under the Energy Security Bill, the purpose of the levy on consumer bills was to provide long-term funding for the hydrogen business model, which would “enable hydrogen producers to overcome the operating cost gap between low carbon hydrogen and fossil fuels.”

Analysis from the Conservative think tank Onward in May claimed that an extra levy for hydrogen could add £118 to annual household bills, a 10 percent increase on dual fuel bills.

Gas Shipping Industry

The revised legislation will now be applied higher up the energy supply chain, with the potential for costs to be spread to sectors expected to benefit most from early hydrogen deployment.

A Department for Energy Security and Net Zero spokesperson confirmed to The Epoch Times by email that it is now proposing a tax on companies that transport gas.

“Our changes to the Energy Bill put fairness at the heart of our plans to drive forward low-carbon hydrogen, which will boost energy security and help lower bills in the long term,” the spokesperson said.

“The new levy would be aimed at the gas shipping industry and will help to ensure those who benefit from hydrogen can support the UK’s growing hydrogen economy, with the potential to create over 12,000 new jobs by 2030.

“We will consult on its design and intend to work closely with industry partners, including shippers, to ensure the levy helps deliver a fair deal for consumers.”

The Epoch Times understands that in the case of Northern Ireland, only gas supply licence holders that engage in gas shipping activities can be subject to the levy.

This reflects the different approach to licensing of gas shipping across Great Britain and Northern Ireland.

Writing in The Times of London, Onward’s Head of Energy and Environment Jack Richardson claimed it had influenced the shift and said that “dropping the hydrogen levy is the right decision to maintain public support for net zero.”

Onward co-authored its report with the European Climate Foundation (ECF), which is a “philanthropic initiative to foster the development of a net-zero emissions society.”

Funding for ECF is provided in part by the Bloomberg Family Foundation, the Children’s Investment Fund Foundation, and the Rockefeller Brothers Fund.

Net Zero

The government wants to provide 10 gigawatts of hydrogen production capacity by 2030, however there is almost no low carbon production of hydrogen in the UK or globally today.

There are almost no abundant natural sources of pure hydrogen, which means that it has to be manufactured.

In July, a net zero trial for hydrogen heating was called off for one of two sites after protests and resistance from homeowners, with one minister saying that there is “no strong local support” for the project.

In February, a report from the Royal Society looked into one aspect of hydrogen and warned that there is no single, clear alternative to jet fuel able to support flying on a scale equivalent to present-day use.

It found that the UK would have to give up half its farmland to make enough alternative aviation fuel to meet its net zero ambitions.

It added that producing sufficient green hydrogen fuel would require 2.4 to 3.4 times the UK’s 2020 renewable electricity generation.

“This is one of those cases where the rhetoric of net zero collides with the reality of the way we live our lives,” Andy Mayer, energy analyst at the free market think-tank Institute of Economic Affairs, told The Epoch Times at the time.