Low-Carbon Levy Burden Explorer

How energy transition costs burden different income groups

10th Percentile (Poor)

Single adult or lone parent; very low work intensity; renting; small flat (1-2 rooms); minimal heating infrastructure; fuel poverty risk.
Net Income Before Housing £11,000/yr
Net Income After Housing £5,500/yr
Annual Electricity Use 2,400 kWh
Annual Energy Bill £1,450
Annual Low-Carbon Levies £42.57

Levy Burden Metrics

Levies as % of Energy Bill 2.9%
Levies as % of Income (Before Housing) 0.39%
Levies as % of Income (After Housing) 0.77%

Equivalent to

Heating one extra room for 6.1 weeks per year

Levy Burden as % of Net Income After Housing Costs

Richest households (90th) face only about one-fifth the burden of poorest (10th): 4.8× regressivity

If Levies Were Collected Using UK Income Tax Bands

Here we imagine funding the same total levy pot using a tiny income‑based charge that follows the UK tax bands: no charge on income below the personal allowance, a small charge on basic‑rate income, a higher charge on higher‑rate income, and the highest charge on additional‑rate income.

Current (Regressive) vs. Income Tax Banded (Progressive) Distribution

10th Percentile
Current Levy
£42.57
Banded Levy
£0.00
Would saves £42.57/year (100.0% less)
25th Percentile
Current Levy
£49.67
Banded Levy
£13.06
Would saves £36.61/year (73.7% less)
50th Percentile
Current Levy
£65.63
Banded Levy
£49.13
Would saves £16.50/year (25.1% less)
75th Percentile
Current Levy
£75.10
Banded Levy
£101.38
Would pays £26.28/year (35.0% more)
90th Percentile
Current Levy
£89.28
Banded Levy
£209.59
Would pays £120.31/year (134.8% more)
What are low-carbon levies? (CfD, Capacity Market, Nuclear RAB) ▼

Low-carbon levies are statutory charges recovered through electricity bills to finance the UK's energy transition infrastructure. They comprise three main components:

Contracts for Difference (CfD)

Subsidies paid to renewable energy generators (wind, solar, nuclear) when wholesale electricity prices fall below strike prices. This ensures investor certainty and incentivises low-carbon investment. The levy covers the difference between the strike price and market price.

Capacity Market

Payments made to power plants (low-carbon or otherwise) that guarantee availability during peak demand periods. This maintains system reliability as traditional coal and gas capacity retires.

Nuclear RAB (Regulated Asset Base)

A financing mechanism for new nuclear plants (e.g., Hinkley Point C) where costs are recovered through bills over the lifetime of the asset. This shifts financing from up-front government spending to long-term bill recovery, reducing exchequer pressure.

The political economy issue: These levies appear proportionate when shown as a share of electricity bills (~3%), but are deeply regressive when measured against true discretionary income—particularly for households that have already spent heavily on housing costs.

Data sourcing and methodology ▼

Data Sources

Household income: Family Resources Survey (FRS) 2024, equivalised disposable income before and after housing costs (AHC). Income percentiles reflect actual UK household distribution.

Energy Consumption & Bills

Electricity and gas consumption: Ofgem Typical Domestic Consumption Values (TDCV) adjusted to income deciles. The 10th percentile reflects "low-use" profile (fuel poverty mitigation); the 50th percentile matches Ofgem's canonical medium-use household.

Energy prices: Q1 2025/26 Ofgem price cap applied to consumption volumes. Dual-fuel (electricity + gas) bills reflect current market rates.

Low-Carbon Levies

Current levies: CfD, Capacity Market, and Nuclear RAB charges recovered per kilowatt-hour of consumption. Rates are current as of January 2026. Levies calculated as: (levy rate per kWh) × (electricity consumption in kWh).

Household Typology

Each percentile is stylised to match typical demographic and housing characteristics at that income level. Consumption patterns are consistent with energy poverty literature (e.g., under-heating in poorest households) and Ofgem regulatory benchmarks.

Income Tax Banded Distribution

The "banded levy" scenario applies the UK income tax band structure (2025/26) as a multiplier to a base levy rate. Income is exempt (0× multiplier) below the personal allowance (£12,570); taxed at 1× the base rate in the basic-rate band (£12,571–£50,270); at 2× in the higher-rate band (£50,271–£125,140); and 3× in the additional-rate band (£125,141+). The base rate is calibrated to yield the same total levy across all households (£373.15) as the current per-kWh system.