Katerina Swanson
Fossil fuels are a significant cost burden in the UK, with the country spending billions in subsidies for oil, gas, and coal consumption. In 2022, 78.4% of the UK's primary energy consumption came from fossil fuels, with natural gas usage remaining high despite a decline in coal usage. The UK has pledged to reach “net zero by 2050, which means significantly reducing fossil fuel consumption and increasing the use of renewable and low-carbon energy sources. However, the government has been criticized for a lack of progress, and continued reliance on fossil fuels has contributed to substantial increases in electricity bills. With renewable energy sources being cheaper and better for the environment, the UK faces a critical juncture in transitioning to cleaner and more sustainable energy alternatives.
| Characteristics | Values |
|---|---|
| Percentage of primary energy consumed within the UK that came from fossil fuels in 2022 | 78.4% |
| Percentage of the UK's total fuel usage in 2022 that was electricity generation | 33% |
| Percentage of electricity production in the UK that relied on fossil gas in 2020 | 37% |
| Average monthly UK wholesale electricity prices from August 2020 to August 2021 | £107/MWh |
| Fossil gas average day-ahead price from December 2020 to August 2021 | 45 pence per therm to 109 pence per therm |
| Fossil fuel subsidy in the UK per year | £9bn to £12bn |
| Petrol prices in July 2022 | £1.89 per litre |
| Diesel prices in July 2022 | £1.98 per litre |
| Petrol prices in April 2024 | £1.47 per litre |
| Diesel prices in April 2024 | £1.56 per litre |
| Year in which the UK has pledged to reach "net zero" | 2050 |
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What You'll Learn
Fossil fuel subsidies in the UK
Fossil fuel subsidies have been a contentious issue in the UK, with the government facing criticism for its support of the industry. According to research commissioned by the Liberal Democrats, the UK government has provided close to £80 billion in support to fossil fuel producers since 2015, while renewable energy received only £60 billion during the same period. This disparity has sparked concerns among politicians and climate activists, who argue that the government should prioritize net-zero targets and invest more heavily in renewable energy sources.
In recent years, the UK government has taken steps to address this criticism and transition away from fossil fuel subsidies. In 2024, the government announced plans to award £22 billion in subsidies to carbon capture projects, following increased lobbying by the fossil fuel industry. This decision was based on the belief that carbon capture technology would aid in the country's transition to net-zero and support the revitalisation of British industry. However, critics argue that this move may "'lock in' fossil fuel dependency" rather than fostering a shift towards renewable alternatives.
Despite these efforts, the UK has been accused of not doing enough to phase out fossil fuel subsidies. In 2025, the UK joined an international coalition, the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS), committing to transparency and the removal of barriers to ending fossil fuel subsidies. This coalition aims to address the global challenge of transitioning away from fossil fuels and encourage international cooperation to maintain a level playing field. However, the implementation of these commitments has been slow, and the UK has yet to publish its subsidy inventory, missing the initial deadline along with several other countries.
While the UK has shown a willingness to reduce its reliance on fossil fuels and transition to renewable energy, the process has been gradual and met with resistance. The government has justified its continued support for the fossil fuel industry by emphasising the need for energy security and a stable transition to net zero. Additionally, the removal of fuel subsidies has sparked demonstrations across Europe, underscoring the complexity of this issue and the need for a comprehensive approach that considers the potential impact on vulnerable populations. As the UK moves forward, it will need to balance its energy security and economic concerns with its commitment to addressing climate change and achieving its net-zero goals.
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Fossil fuel price volatility
The UK's commitment to achieving "net zero" by 2050, with all electricity generated from "clean" sources by 2035, underscores the importance of transitioning to renewable energy sources. The volatile nature of fossil fuel prices poses challenges to macroeconomic price stability and highlights the need for a rapid divestment from fossil fuels. The US Inflation Reduction Act, a $369 billion investment in clean energy, exemplifies a shift towards recognizing the inherent volatility of fossil fuel prices and the urgency of addressing climate change.
The UK government's decision to invest in new gas-fired power stations has been criticized for contradicting its "net zero" commitments. Instead, investing in renewables has been advised as a more effective way to lower customer bills and enhance energy security. A renewables-dominated system is expected to reduce costs overall compared to the average electricity wholesale market price. This reduction in costs is attributed to a decreased dependency on gas, flexible use of electricity, and large-scale energy storage capabilities.
To achieve long-term price stability and mitigate the impact of fossil fuel price volatility, a well-managed and rapid transition to electrified, renewable energy sources is essential. This transition involves not only building renewable energy infrastructure but also divesting from the use and production of fossil fuels. By reducing dependence on fossil fuels, the UK can address the structural deficiencies contributing to inflation and energy price volatility.
In summary, fossil fuel price volatility in the UK has been significant, driven by factors affecting supply and demand. The UK's commitment to "net zero" and the inherent volatility of fossil fuel prices emphasize the urgency of transitioning to renewable energy sources. By investing in renewables and reducing reliance on fossil fuels, the UK can achieve long-term price stability and fulfill its climate goals.
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Fossil fuel imports
The UK has turned to other countries to meet its fossil fuel import needs. In the year following Russia's invasion of Ukraine, UK fossil fuel imports from authoritarian petrostates surged to £19.3 billion. The UK imported £6.9 billion worth of fossil fuels from Qatar, £3.4 billion from Saudi Arabia, £2.6 billion from Kuwait, and £2.5 billion from the UAE. The UK's trade with the Gulf Cooperation Council (GCC), a trade bloc comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, hit a record high of £61.3 billion in 2022.
Norway is the main supplier of both crude oil and natural gas liquids to the United Kingdom. In 2023, the UK imported 14.6 million metric tons of crude oil from the United States, making it the second-largest supplier. Nigeria, Libya, and Algeria round out the top five origin countries. In 2022, crude oil and natural gas liquids imports to the UK totalled around 43 million metric tons.
The UK's reliance on fossil fuel imports has contributed to rising electricity prices. The average monthly UK wholesale electricity prices have almost tripled from August 2020 to August 2021, increasing from £36/MWh to £107/MWh. The cost of generating electricity from fossil gas has also tripled to over £100/MWh during the same period. The soaring cost of imported fossil gas is driving up electricity prices in the UK, causing substantial increases in electricity bills.
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Fossil fuel tax allowances
One example of a fossil fuel tax allowance in the UK is the Energy Profits Levy, which was introduced in 2022 as a response to growing pressure for a 'windfall tax' on the profits of companies extracting oil and gas in the North Sea. While the levy increased the rate of corporation tax paid on oil and gas profits, it also included a 'super-deduction' style relief, encouraging companies to invest more in oil and gas extraction in the UK. This relief allows companies to deduct the costs of decommissioning old infrastructure and capital expenditure on new plant and machinery from their taxable profits, resulting in lower taxes or even tax refunds.
The UK government has defended these tax allowances, arguing that they are necessary to encourage companies to reinvest their profits in the UK, support jobs, and ensure energy security. However, critics argue that these tax reliefs harm the energy transition by incentivizing a slower shift away from fossil fuels. Additionally, they argue that the lost revenue from these tax reliefs could have been used to support households struggling with energy poverty and improve public services.
To align with its international commitments and pledges, the UK government has acknowledged the need to phase out fossil fuel subsidies and tax reliefs. As part of its G7 pledge, the government has committed to ending all subsidies by 2025 and creating a comprehensive roadmap to reduce and phase out fossil fuel subsidies. Additionally, the UK has pledged to become a carbon-neutral economy by 2050, which will require a significant shift away from fossil fuels and towards renewable energy sources.
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Fossil fuel vs renewable energy costs
The UK has pledged to reach "net zero" by 2050, which means that much less of its energy will come from fossil fuels and more from renewable and low-carbon sources. In 2022, 78.4% of the UK's primary energy consumed came from fossil fuels, down from 87.2% in 2012. This shift away from fossil fuels is driven in part by the UK's legally binding target to be net zero across the economy by 2050, but also by the increasing cost of fossil fuels.
The soaring cost of imported fossil gas is driving up electricity prices in the UK. UK fossil gas prices have skyrocketed since the start of 2021, with the average day-ahead price more than doubling from 45 pence per therm in December 2020 to 109 pence per therm in August 2021. This has resulted in substantial increases in electricity bills. The UK's reliance on fossil gas for 37% of its electricity production in 2020 means that the exponential rise in fossil gas prices has had a significant impact on overall electricity prices.
In contrast, renewable energy is becoming increasingly affordable. The IEA reported that in 2023, an estimated 96% of newly installed, utility-scale solar PV and onshore wind capacity had lower generation costs than new coal and natural gas. Three-quarters of these new wind and solar plants offered cheaper power than existing fossil fuel facilities. Renewable energy sources run at a lower cost because they don't require fuel to run, whereas fossil fuel plants require expensive fuels like coal, oil and natural gas. Fuel costs for fossil fuels also fluctuate, which can make it difficult to predict operating costs, unlike renewable energy sources.
The lower cost of a renewables-dominated system relative to one based on fossil fuels is due to a reduced dependency on gas. Flexible use of electricity is another factor, as it reduces the infrastructure needed and limits reliance on more expensive sources of power during periods of high energy demand. Large-scale energy storage also allows for the stockpiling of renewable energy at times of surplus relative to demand.
The cost-competitiveness of renewable power has been accelerated by the fossil fuel price crisis. A report by the International Renewable Energy Agency (IRENA) found that the renewable power added in 2022 reduced the fuel bill of the electricity sector worldwide by at least USD 520 billion. The deployment of renewables has also helped to address the energy and climate crises by accelerating the transition to net-zero emissions.
In conclusion, renewable energy is becoming increasingly affordable compared to fossil fuels, which are becoming more expensive. The UK's transition to net zero by 2050 is therefore likely to be driven not only by environmental concerns but also by the economic benefits of renewable energy.
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Frequently asked questions
Fossil fuels are fuels that are formed from the remains of dead plants and animals over millions of years. They include coal, oil and natural gas.
The cost of fossil fuels in the UK has been increasing. In 2021, the average price of fossil gas more than doubled from 45 pence per therm in December 2020 to 109 pence per therm in August 2021. By 2024, petrol prices had reached £1.47 per litre, more than double the price a decade earlier.
The increase in the cost of fossil fuels is due to a variety of factors, including the war in Ukraine, the rise of wholesale prices, increased demand, and the depletion of fossil gas storage levels during the cold northern hemisphere winter.
Yes, renewable energy sources such as wind, solar and hydropower are alternatives to fossil fuels. These sources are typically cheaper than fossil fuels and have the added benefit of being better for the environment and safer for local communities.
