The UK government has begun a consultation on funding green hydrogen production subsidies using the proceeds from a proposed levy on gas companies, Kallanish learns.

The so-called Gas Shipper Obligation (GSO) is a levy on “gas shippers” in the country, where gas firms would be charged based on the quantities of gas shipped, the Department for Energy Security and Net Zero (DESNZ) said Thursday. 

Gas shippers – which the government defines as those who “buy gas from producers, trade gas on wholesale markets, and sell it on to gas suppliers” – can pass on some or all the costs of the GSO to their customers. The government, however, expects the gas shippers and suppliers to pass on the costs directly to the customers.

“Publication of this consultation demonstrates this government’s commitment to developing a thriving and world-leading UK hydrogen sector,” says Sarah Jones, minister of state for industry, in a parliament statement. “Low carbon hydrogen will play an important role in supporting the delivery of our Clean Energy Superpower and Growth missions, as a key enabler of a low carbon and renewables-based energy system.”

The government intends GSO to be the long-term funding mechanism for subsidies under its Hydrogen Production Business Model. To fund the first hydrogen allocation round (HAR1) contracts alone, the government estimates GSO would need to raise around £150 million ($183m) per year from 2028.

As such, the government expects the proposed approach “could add approximately £2.60-£4.50 per annum to the average dual fuel household energy bill over the 10-year period we have assessed (2028-2037).” 

“This consultation represents a crucial moment for the hydrogen sector, with the potential to create new job opportunities and enhance our energy security,” comments Clare Jackson, ceo of trade body Hydrogen UK. “By investing in homegrown, clean energy, we are driving long-term economic growth.”

The consultation comes after the government last month issued contracts for three of the 11 green hydrogen projects selected for funding under HAR1. The 12-week consultation will be open until 9 April 2025.