Outgoing energy security secretary Grant Shapps has faced scrutiny over proposals to tax hydrogen transport companies over fears the move would simply cost consumers more.
The government on Wednesday scrapped plans to implement a levy on consumers to fund subsidies for the growing hydrogen industry. That levy, which had been slammed by Shapps' fellow Tory ministers, would have added an estimated £118 per year to household bills.
The proposal to tax hydrogen transport companies is aimed at incentivising domestic production.
But critics argue that a tax on transporters would simply see prices lifted - again pushing up consumer costs.
“Charging shippers will just push the fees back onto consumers. All it does is move the charge back up the value chain,” Watt Logic analyst Kathryn Porter said.
“To avoid it ending up on consumer bills, it needs to be taken out of the value chain altogether and put into general taxation.”
Former government energy official Adam Bell sarcastically dubbed the move “an absolute PR victory for the government” meanwhile, given news of the levy being scrapped had been well-received, regardless of the fact a tax could see costs passed through to consumers.
Shippers take possession of gas as it moves through the network and sell it to suppliers at the far end. If you think shippers won't jack up their prices in response to this - which will be passed through to consumers - I have a gas transmission pipe to sell you. /2
— Adam Bell (@Adam_Grant_Bell) August 30, 2023
Britain is targeting ten gigawatts of hydrogen production capacity by 2030, with the fuel tipped to offer an alternative to fossil fuels in the likes of energy storage and transport.
Hydrogen can indeed be greener than fossil fuels if produced through electrolysis using clean renewable energy.
However, given the rapid expansion the UK’s hydrogen industry will need to go through to meet targets, billions of pounds in subsidies are anticipated to be needed to incentivise and ensure that currently high production costs are brought down in the future.
“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,” a government spokesperson said.
“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.”