Green Gas Levy: Tariff scheme to fund biomethane plants set for autumn launch

Plans to fund the production of biomethane 'green gas' to provide low carbon heating for homes and businesses through a new carbon tax on UK fossil fuel gas suppliers have been confirmed today, with the government signalling that it aims to launch the new tariff scheme in the autumn.

The Green Gas Levy and accompanying Green Gas Support Scheme, which were first announced as part of the Budget last year, are set to apply to gas suppliers in Scotland, Wales, and England and are designed to help reduce emissions by growing the proportion of low carbon biomethane used on the gas grid.

Heating is currently responsible for around a third of the UK's total greenhouse gas emissions, due to the overwhelming majority of homes and businesses being heated by fossil fuel gas. As such decarbonising the gas grid remains "one of the biggest challenges we face in meeting our climate targets", according to the government.

Under plans confirmed by the government today, licensed fossil fuel gas suppliers in Britain will soon face a new levy - the precise rates of which are set to be announced later this year - with the proceeds used to support the growth of lower carbon biomethane production throughout the UK.

Gas suppliers for which at least 95 per cent of their output is biomethane will be exempt from the levy, the government said, in a move designed to further incentivise the use of biogas.

The scheme will then offer tariffs with a 15-year lifetime to fund the development of grid-connected anaerobic digestion (AD) facilities, which break down organic matter such as food and animal waste to produce biogas and biofertiliser.  

The resulting biogas - or biomethane - offers a lower carbon alternative to fossil fuel-based methane, and can be directly injected into the existing gas grid to help reduce the emissions intensity of heating homes and businesses.

The green gas tariff scheme is expected to help save 21.6 million tonnes of CO2 emissions over its lifetime, while also helping to support high quality jobs, particularly in rural areas, according to Lord Callanan, Minister for Climate Change and Corporate Responsibility.

"This ambitious policy will help meet the commitments made in the 2019 Spring Statement and 2020 Budget to increase the proportion of green gas in the grid," he said. "It will also promote a circular economy by encouraging the use of domestic and industrial food waste to heat our homes and businesses."

The Department for Business, Energy and Industrial Strategy (BEIS) said the new levy would have a "minimal" impact on billpayers, estimating the costs are likely to peak at around £4.70 a year for an average domestic consumers by 2028. It has previously estimated the new levy could see consumer gas bills rise by around 11p per month.

Today's announcement follows several consultations over the past year on various aspects of the design of the Green Gas Support Scheme and accompanying levy. The government has also consulted on plans for a Clean Heat Grant, on which a separate final response is expected later this year.

However, green businesses still remain largely in the dark about the government's broader vision for decarbonising the UK gas grid, with the hotly-anticipated Heat and Buildings Strategy now expected to emerge later in the autumn following a further delay. The new strategy had been expected this week, but has reportedly been delayed following disagreements within government over how to fund plans that are designed to drive a massive increase in the roll out of heat pumps, energy efficiency upgrades, and other green heat technologies.

Business Secretary Kwasi Kwarteng told MPs earlier this week that Heat and Buildings Strategy would emerge "soon", and suggested that the Hydrogen Strategy - another key net zero policy plan long sought by green businesses - would arrive beforehand, although he added that he "can't guarantee" whether it would be published this week before Parliament's summer recess.

During the same select committee hearing on Tuesday, Kwarteng sought to emphasise that there are "no silver bullets" for decarbonising heating, and that he believed heat pumps and switching to boilers that run on hydrogen could both play key roles in reducing emissions from homes and buildings.

However, in a separate committee hearing the following day, Kwarteng admitted that the current crop of smart meters being installed across the UK would not be able to track gas use in homes heated using hydrogen. As such, if homes are switched to run on hydrogen instead of gas, all of those houses would need to have their smart meters replaced, as the chemical differences between methane and hydrogen mean the devices cannot track the flow of the latter, according to The Telegraph. 

During yesterday's committee hearing, Kwarteng said "wr are developing prototype smart meters that can be installed to be adapted to hydrogen".