UK Government Shifts Hydrogen Funding Strategy: Gas Shipping Industry to Bear New Levy

The UK government has unveiled a significant amendment to its upcoming Energy Bill, signaling a departure from its original plan to introduce a hydrogen levy on domestic energy bills. Instead, the proposed reform aims to impose a fresh levy on the gas shipping industry.

This strategic shift seeks to secure the necessary funding to drive the expansion of low carbon hydrogen production facilities in the nation.

Originally, the government had envisioned a hydrogen levy on domestic energy bills, set to be effective from 2025. This proposed levy was intended to support contracts with hydrogen producers, fostering the development of low carbon hydrogen production facilities and their associated infrastructure. However, this plan encountered resistance from backbench MPs and campaigners who expressed concerns about the potential financial burden on households, especially at a time when energy costs are already high.

New Levy Approach

In response to the feedback and evolving priorities, the government has reevaluated its funding strategy. The amendment unveiled today confirms the abandonment of the hydrogen levy on domestic energy bills. Instead, it introduces a novel approach—a levy on the gas shipping industry. This shift aims to ensure that those who directly benefit from hydrogen contribute to the growth of the UK’s burgeoning hydrogen economy.

A spokesperson from the Department of Energy Security and Net Zero emphasized the principle of fairness embedded in the revised Energy Bill. “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 stated. Furthermore, the spokesperson highlighted the potential for job creation, with over 12,000 new jobs anticipated by 2030 due to the growth of the hydrogen economy.

The government’s next steps involve consultation on the new levy scheme before its implementation. While concerns linger about the possible trickle-down of costs to end-users, the government asserts that the new approach targets sectors that stand to benefit the most from early hydrogen deployment. This strategic decision seeks to alleviate the financial pressure on households and shift the responsibility to sectors with direct involvement in hydrogen utilization.

The amended approach has garnered positive responses from various quarters. Jack Richardson, head of energy and climate at think tank Onward, hailed the decision as a prudent move to sustain public support for the net zero agenda. Richardson highlighted the need to ensure that funding remains politically sustainable while advancing the hydrogen industry. Additionally, Jo Gideon, MP for Stoke-on-Trent Central, praised the government’s sensible compromise, underscoring the importance of supporting the hydrogen sector without placing an undue burden on households.

This strategic shift in funding approach reflects the evolving dynamics of the hydrogen landscape and the government’s commitment to balancing financial considerations with environmental goals. As the UK continues its pursuit of a greener future, the revamped levy strategy aligns with the imperative of promoting sustainable hydrogen production and usage while safeguarding the interests of households.