Energy bills will rise by £213 to meet EU emissions targets, study warns

Every household in the country will face a £213 rise in their annual energy bills if the UK is to meet European Union emissions targets, according to an Ernst & Young report, which also warns that half of all Britons are not prepared to pay.

The accountancy firm will today publish a major new report on the impact on energy bills of the UK's climate change commitments, which warns that households will have to pay at least 20 per cent more to gas and electricity suppliers.

The report, Costing the Earth?, puts the cost of capital investment required to meet emissions reduction and renewable energy targets for 2020 at £100bn. Consumers will be required to contribute £5.3bn towards those costs by 2020, when the EU's targets become mandatory, an average rise of £213 in today's prices.

The report includes research from YouGov, the polling organisation, which found that 96 per cent of respondents disagreed with the statement "my home energy bill needs to rise to help combat climate change."

Exactly half the respondents said they would not be prepared to cut back on their energy consumption, even if their bill was to go up by £200 or more.

Simon Harvey, one of the authors of the report, said that the UK was facing pressure to reduce emissions at the worst possible time. "Customers face a triple whammy," he said. "Rising fuel and oil prices, the costs of climate change mitigation, and on top of both, the additional investment required to become more energy efficient, for example, by insulating the home."

Ernst & Young said that its estimate of the additional costs faced by consumers represented conservative assumptions. It has taken no account, for example, of possible future increases in commodity prices.

The warning will be an embarrassment to the Government, which is nervous about a backlash against its efforts to meet climate change targets. Last week Gordon Brown launched ambitious new targets for Britain's use of alternative energy, particularly wind, but played down the cost implications of the switch for business and consumers.

The Prime Minister has faced criticism for the limited public investment he has offered businesses in the alternative energy sector, while consumer groups have called for additional support for households installing energy efficient equipment.

Mr Harvey said that the Government had not done enough to help power companies make the switch to renewable energy, or to prepare consumers for the inevitable increase in bills that the transition will bring. "Achieving [the EU's] targets will require concerted action by energy suppliers working in partnership with the Government, little or no delays in the construction of low carbon generation such as nuclear and renewables and clarity on policy mechanisms," he said. "We need better education for customers that they will have to pay for low carbon generation."

A substantial increase in home energy bills would increase the number of people classified as being caught in fuel poverty. That would be a further political embarrassment, because ministers have pledged to protect the most vulnerable households from higher fuel costs.

Leading power companies have repeatedly urged ministers to be more honest with consumers about the cost of combating climate change.

Ofgem, the energy industry, said existing efforts to reduce emissions were already adding to household bills, though few consumers realised this was the case. It said the cost of carbon credits that power companies have to buy to meet their pollution caps translates to a £31 annual addition to the average bill. A government initiative to force suppliers to install more efficient appliances in customers' homes adds a further £38, while requirements for more renewable power sources tacks on another £20. Increases in transport tariffs had added another £3 to customer bills.