David Cameron announces Green Levy Reform

The government plans to roll back the largest so-called green levy in an attempt to cut energy bills. It sets out how a scheme that forces energy companies to give free insulation to low income households will be reformed by law next year.

ECO scheme costs firms £1.3bn a year and adds about £50 to every bill.

The document:

  1. Reveals that the government plans to reduce the Energy Companies Obligation's (ECO) key energy efficiency target by 30%
  2. ECO will be extended for another two years until March 2017
  3. Carbon Emissions Obligation Reduction target – known as CERO – will be reduced by 30%.

This has been reported as a saving energy firms not having to install so much expensive solid wall insulation in hard-to-treat homes.Instead, they will be given greater freedom to install cheaper cavity wall and loft insulation in easy-to-treat homes.As a result only 100,000 solid wall insulations will have to be made over the next four years, about 25,000 per year.That amounts to a massive reduction – there were 80,000 solid wall insulation installations in 2012 alone.

Effects of the Reform

Building groups said this would severely damage the green energy industry and mean thousands of people will lose their jobs in coming weeks. It also means much less free insulation for fuel poor households, half of whom live in solid wall properties.Diluting the target also means that the government will be doing much less to reduce carbon emissions. If there is no action to compensate for this by cutting carbon elsewhere, this would amount to a huge concession by Liberal Democrats.

The Green Levy letter  says: "The government intends to make changes to the ECO order with a view to extending the period over which the obligation will run and reducing the expected cost of compliance. The government will consult on detailed proposals shortly and will subsequently look to introduce the necessary legislation as soon as possible.

Paul King, chief executive of the UK Green Building Council, said ECO is the lifeblood of the insulation industry and cuts to it will result in huge job losses and condemn hundreds of thousands of families to unaffordable energy bills, yet government appears to be in the pocket of some of the energy companies when it comes to deciding its fate.

This Reform comes as the government denied that it has asked for a commitment from energy firms not to raise prices until 2015.On Thursday, energy industry sources, including one of the energy suppliers told the BBC it had been asked to hold down prices so long as there was no significant move in global wholesale energy prices.