High-efficiency low-carbon heating systems, particularly air-source and ground-source heat pumps, are increasingly being installed in UK homes to replace traditional gas boilers. This is part of the UK's strategy to decarbonise residential heating, which currently accounts for a significant portion of greenhouse gas emissions.
Natural gas remains the dominant fuel for heating, supplying over 75% of UK homes. However, the government aims to phase out the installation of new gas boilers by 2035. Heat pumps use electricity to extract heat from the outside air or ground, making them highly efficient, especially when powered by renewable electricity.
To accelerate this transition, the government has introduced financial support schemes to help households heat their homes greenly. This financial support reduces the initial capital cost barrier for consumers, making heat pumps more price-competitive with gas boilers.
Conversely, fossil-fuel heating options may face higher environmental levies or indirect taxes in the future to reflect their true environmental impact. An indirect tax shifts the marginal private cost of gas heating upwards, aiming to align the market price with the true social cost.
Explain what is meant by the term 'indirect tax'.
