Alternatives being drawn up to replace hydrogen levy

The government is drawing up a list of alternative funding options to replace its controversial plans for a hydrogen levy, a backbench MP has revealed.

This week’s House of Commons debate scrutinising the government’s Energy Bill focused on the proposed levy, which is designed to support investment in hydrogen production and distribution.

The proposed levy drew flak from MPs, including former Conservative minister Alec Shelbrook, who described it as a “mistake” that would compound existing public disquiet about social and environmental costs being added to energy bills.

But the backbench MP told the Commons that he has been “led to believe that the government are trying to work on alternatives” to be presented at a later stage of the bill’s passage through Parliament.

Junior energy minister Andrew Bowie said discussions on the design of the hydrogen production levy, and even whether the government will press ahead with it, are “ongoing”.

“Discussions as to what form that levy will take—or whether it will exist—continue. Those discussions will take into account all relevant considerations, including the affordability of energy bills, which I hope I have made clear the government take incredibly seriously.”

He said that while the government had yet to take a decision on how the transport and storage of hydrogen will be funded, the bill provides powers to enable funding by both the taxpayer and a levy.

At an event, held yesterday (7 June) by the Policy Exchange, Bowie confirmed that discussions about the future shape of hydrogen support are ongoing.

He said: “We need to take people on this journey with us. They need to see and feel that the investments that we are making and spending time legislating for and everything that we are doing as a government will actually benefit them.”

The government also overturned an amendment, passed by the House of Lords, which would have shifted the levy from suppliers to gas shippers.

Bowie told the Policy Exchange event that imposing the levy on shippers would have ended up as a “levy by the backdoor” because those costs would be passed onto consumers whose bills would have gone up anyway.

This week’s Energy Bill debate followed weekend press reports that energy secretary Grant Shapps, is “poised to ditch” the hydrogen levy following the backlash to the proposal from fellow Conservative MPs.

Shadow energy minister Alan Whitehead warned that imposing a levy on suppliers would be an “absolutely suicidal” move by the government and that Bowie is being “hung out to dry” by Shapps by pressing ahead with the proposal.

Whitehead also said, based on thinktank Onward’s calculation that the hydrogen levy would add £118 to annual bills, the overall cost of levies to customers would increase by “two thirds”.

“If we continue trying to add levies for everything to customer bills, they will increase hugely by 2030, not because the prices of electricity or gas have gone up or because Mr Putin has invaded anywhere else, but because of conscious policy design and the way the government set up the levy system,” Whitehead said.

He was backed up by shadow climate change minister Kerry McCarthy who warned that the government decision to reinstate the levy on suppliers is “almost a wrecking motion for net zero” because of the huge level of opposition that it will generate.

She urged the government to think hard about “championing such a burden” on households when it is not clear whether that they will see the benefit due to the uncertainty hanging over the role that hydrogen will play in home heating.