Energy Systems Catapult published analysis on 13 November 2025 finding that UK policies give residential gas an effective carbon price of -£67/tCO2e, meaning the policy framework effectively subsidises emissions from burning gas in homes. The same analysis puts the effective carbon price of residential electricity at £74/tCO2e. Both figures sit well below the £261/tCO2e the government has estimated is needed to meet Net Zero obligations1.
The analysis covers the three main residential energy sources. Homes account for around 66 million tonnes of CO2e emissions per year, or around 15% of the UK's total annual emissions, of which gas use accounts for around 65%, electricity about 23%, and oil and coal the remaining 12%1.
Energy Systems Catapult attributes the negative figure for gas to three factors. Residential energy carries VAT at 5% rather than the 20% rate applied to most other goods and services, which the analysis describes as equivalent to roughly £2bn in foregone tax revenue each year. Residential gas, unlike electricity, has no carbon pricing costs added by government policy, so it escapes the UK Emissions Trading Scheme and Carbon Price Support mechanism that electricity generators pay. The retail price of gas also includes hardly any costs associated with decarbonisation, whereas electricity bills include the cost of support for the rollout of renewables1.
For electricity, the analysis says differing policies counterbalance each other, with the low VAT rating partially offset by decarbonisation costs included in bills. Emissions from residential electricity have declined significantly since the organisation's first analysis in 2018, which it links to the ongoing increase in renewables such as offshore wind1.
"We've now found that the same is true in the domestic sector. The effective carbon price for all three major residential energy sources is well below £261/tCO2e."
| Residential energy source | Effective carbon price |
|---|---|
| Gas | -£67/tCO2e |
| Electricity | £74/tCO2e |
| Government estimate needed for Net Zero | £261/tCO2e |
Why it matters for households
An effective carbon price is a measure of how far policy pushes the price of an energy source up or down in line with its emissions. A negative figure for gas means the combined effect of tax treatment and the absence of carbon costs on gas works in the opposite direction to decarbonisation: the price signal favours the more carbon-intensive fuel. For a household, that shows up in the running-cost gap between a gas boiler and an electric alternative such as a heat pump, which is the comparison that usually decides whether a home switches. The analysis states that policy makes fossil gas cheaper than cleaner electricity, and that the effective carbon price for gas is too low to drive change in behaviour or to give businesses an economic margin to sell lower-carbon goods and services1.
The analysis also notes that the highest users of the most carbon-intensive forms of residential energy capture proportionately more of the benefit of the reduced VAT rate, describing the impact of that policy as indiscriminate1. The wider policy framework for home energy is set out in the UK home energy regulation and policy guide, and the Energy Price Cap governs the default tariff that most households pay.
What happens next
No implementation date or government commitment follows from the analysis. Energy Systems Catapult sets out options rather than decisions: it points to a recent Catapult perspective suggesting extending emissions trading to cover domestic heating, with some revenue recycled to address affordability impacts for low-income households, and to work by Nesta on options for levy reform1. It states that in the absence of a significant change to the tax or pricing framework, the transition would have to be driven by technology-specific policies and subsidies or hard regulatory mandates1. The analysis notes recent speculation that the government may remove VAT altogether from domestic energy bills, but reports no confirmed change1.
Sources1 cited
- Mixed signals for home heating: policies are paying us to burn fossil fuels, es.catapult.org.uk