Reports: Tory infighting brewing over plans for hydrogen levy on domestic energy bills

The proposed tax is set to be added to the Energy Bill, which started life as the Energy Security Bill last summer under Kwasi Kwarteng and was subsequently hauled in for review amid two consecutive changes in Prime Minister.

An updated version was published in December 2022 and further amendments are in the pipeline due to Rishi Sunak’s decision to split the Department for Business, Energy and Industrial Strategy (BEIS). A new Department for Energy Security and Net-Zero is being set up and will now oversee the Bill.

Heading up the new Department is Grant Shapps, who is receiving flack from fellow Tory MPs over a reported proposal to introduce a new levy on energy bills, to be used to fund hydrogen research and development. The levy would come into place in 2025 – a year before the UK Government is set to make a decision on the role that hydrogen will play in heating buildings, following a series of real-world trials.

Former BEIS Secretary Jacob Rees-Mogg told The Telegraph over the weekend that he attempted to block the levy in his post, under Liz Truss, and that he will continue to voice opposition.

He argued: “Energy is already expensive enough. The Government should try to help people get cheaper energy, not more expensive energy. There is no justification for further levies on bills.”

Also opposing the levy publicly, on these grounds, are Tory MPs Craig Mckinlay, Marcus Fysh and Andrew Lewer. Labour Lords are also reportedly planning an amendment that would mean that the levy would not apply to homes.

Hydrogen approach

The UK Government is aiming for the nation to host at least 10GW of ‘low-carbon’ hydrogen production capacity by 2030. At least 5GW of this will be for green hydrogen, which is produced by electrolysing water in systems powered by 100% renewable electricity. Its other technology of choice is blue hydrogen, which is produced from fossil gases, with the majority of process emissions captured using man-made technologies.

Blue hydrogen is mired in controversy. Environmental groups have questioned whether carbon capture technologies are mature enough at scale to sufficiently mitigate the impact of production. The Environment Agency has recommended a 95% minimum capture rate. There are also questions about the release of greenhouse gases throughout the lifecycle, and whether fossil fuel firms are betting on blue hydrogen to continue investing in polluting activities.

An additional concern is that, as we are seeing presently, gas can spike in price, dramatically altering the business case for blue hydrogen projects.

A matter or perhaps even more contention than whether we should scale blue hydrogen production is where the hydrogen should best be used to accelerate decarbonisation and contribute to the UK economy.

MPs on the Science and Technology Committee warned Ministers late last year that hydrogen will likely have a “specific but limited” role in decarbonising the economy, both as a means of energy storage and a way to decarbonise technologies for which there are no electrified alternatives at present. The Committee argued the case for low-carbon hydrogen to be used in sectors such as shipping and heavy industry, and cautioned against its use in home heating and for light-duty transport, which can be electrified more easily. This conclusion was partly reached due to the impact that hydrogen would have on energy bills, and partly due to the need to deliver the UK’s legally binding climate targets.

This same conclusion was reached by the International Renewable Energy Agency (IRENA) in its assessment of hydrogen use cases globally, published in early 2022.

Commenting on today’s news on the levy proposals, Greenpeace UK’s chief scientist said: “There’s no reason for ordinary people to support a gas industry survival plan, for product only used by industry.”

Nonetheless, bodies representing gas networks and energy majors, which have already made major investments in research and development for hydrogen for heating buildings, have urged the Government not to rule out any options.