New Green Levy to Drive Up Household Energy Bills

New Green Levy to Drive Up Household Energy Bills

**Labour’s new "gas shipper obligation" (GSO) will add costs to consumer energy bills to help fund clean hydrogen projects, just as Ofgem’s price cap is set to rise by £60.**

## A New Levy, A Familiar Story

The government has announced a new levy on household energy bills to subsidise clean hydrogen production, adding another layer to the already heavy burden of green charges that energy suppliers say are driving up costs .

The **gas shipper obligation (GSO)**, scheduled for introduction in 2027, will initially add up to **£7.10** to average gas and electricity bills . The money raised will fund an initial round of ten green hydrogen schemes, part of Labour's broader push to replace fossil fuels with clean power . Another 27 projects have already been shortlisted, meaning the levy's costs will keep rising to fund them .

The GSO will join a raft of other green levies being added to power bills, threatening Prime Minister Andy Burnham's pledge to tackle the cost-of-living crisis by reducing household energy costs . Mr Burnham has vowed to save families £45 a year by removing VAT from electricity bills, but these savings are set to be wiped out by Ofgem’s price cap, which will rise by £60 from October .

## How the Gas Shipper Obligation Works

The GSO will be imposed on companies that move natural gas through the UK distribution system. Those companies will then be able to recoup the costs from domestic and commercial energy bills . The Department for Energy Security and Net Zero (DESNZ) expects to implement the levy in 2027 .

A report from the Joint Office of Gas Transporters, an industry body, confirmed that "the gas shipper obligation costs will ultimately be passed to consumers based upon their consumption" . The levy will fund the first hydrogen allocation round, providing **approximately £150 million** to ten trial schemes for projects to generate 115 megawatts of green hydrogen .

Green hydrogen is produced by splitting water into hydrogen and oxygen using renewable electricity, then used as a clean fuel . The subsidy will be rapidly scaled up over successive allocation rounds, similar to how wind and solar power were expanded using a similar subsidy system .

## Rapidly Escalating Costs

Officials are already preparing to expand the GSO subsidy schemes to help fund more projects in the coming years . In a second hydrogen allocation round (HAR2), households will help bankroll 27 projects with a capacity of 875MW . Government documents show that subsequent subsidy rounds could increase this to **10 gigawatts**—roughly equivalent to 10 of the UK's existing nuclear power stations .

Industry experts suggest hydrogen subsidies will eventually add around **£40 to average annual domestic bills** if the government decides to commission the full 10GW of capacity . The Low Carbon Contracts Company, which will collect the levy, described the GSO as "designed to incentivise investment in clean hydrogen production and usage" .

## More Than Just Hydrogen

The GSO will be in addition to the raft of other levies that collectively make up about **30% of average domestic bills** . The Office for Budget Responsibility has warned that green levies added to energy bills will rise from £10.5bn in 2025 to **£18.5bn in 2030** . This is in addition to sharp rises in standing charges needed to cover the estimated £110bn cost of upgrading UK grid networks by 2031 .

Britain's biggest energy companies have frequently blamed green levies as one of the main factors driving bills higher . David Turver, an analyst, said electricity system prices—meaning the cost of subsidies and grid upgrades—were set to rise sharply over the next five years :

> "Green hydrogen is hugely expensive and there is no market for it. It is particularly perverse to subsidise something for which there is no demand and in the process further add to already high energy bills."

## Political Opposition

Richard Tice, the Reform UK energy spokesman, condemned the move:

> "Another day, another energy levy being added on consumer bills to pay for more speculative net-zero-related dreams. Reform will stop all this and remove these taxes and levies to slash bills."

A DESNZ spokesman defended the policy: "Energy is an everyday essential and needs to be affordable for everyone, which is why we have cut VAT on electricity bills to give families breathing space. We will keep looking at what more we can do to protect households."

## Frequently Asked Questions

### 1. What is the gas shipper obligation?

The gas shipper obligation (GSO) is a new levy on companies that move natural gas through the UK distribution system. These companies will pass the cost onto household and commercial energy bills to fund clean hydrogen production projects.

### 2. How much will the GSO add to household bills?

The GSO will initially add up to £7.10 to average gas and electricity bills. Industry experts suggest hydrogen subsidies could eventually add around £40 to average annual domestic bills.

### 3. What is green hydrogen?

Green hydrogen is produced by splitting water into hydrogen and oxygen using renewable electricity. The hydrogen can then be used as a clean fuel.

### 4. When will the GSO take effect?

The GSO is scheduled for introduction in 2027, subject to legislation being in place.

### 5. Why are green levies controversial?

Energy companies and critics argue that green levies are a major factor driving up household bills, with the Office for Budget Responsibility warning that they will rise from £10.5bn in 2025 to £18.5bn in 2030.

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## Disclaimer

*This article is for informational and educational purposes only. The information provided is based on publicly available government announcements, news reports, and industry analyses as of August 2026. Policy details, timelines, and costs are subject to change. The views expressed are those of the sources cited and do not necessarily reflect the views of the author.*