The price of gas for small to medium sized businesses is set to soar by 2020 as government climate and decarbonisation policies bite, warns rural energy firm Calor.

In 2016, government reformed the business energy efficiency system.

It will scrap a scheme called the Climate Reduction Commitment (CRC) in 2019 which covers large public and private sector organisations in the UK (which use over 6,000MWh of electricity).

In order to meet this tax shortfall, increase the Main Rates of the CCL across all businesses, disproportionately impacting SMEs who make up the majority of the economy.

Businesses pay the Climate Change Levy (CCL) for the use of electricity, gas and solid fuels which is displayed on their energy bills. These changes will see the CCL rate for natural gas and LPG move closer to electricity before reaching parity by 2025.

Calor has modelled the impact on a typical off-gas grid 80 room hotel. It would see its annual CCL bill almost double between now and 2019 with costs rising from £668 (2015) to £1209 in 2019. By 2025 this figure could hit an eye-watering £10,000, a 1300% increase in under ten years.

Paul Blacklock, head of Strategy and Corporate affairs outlines: "Our modelling shows that if government moves towards bringing the CCL charge on gas to parity with electricity, the cost to rural businesses will rise significantly.

"Our modelling also shows that the changes to the CCL will incentivise off-gas grid businesses to move to more carbon intensive fuels such as heating oil which runs counter to the purpose of the CCL, which should incentivise firms to switch to cleaner fuels."

Calor is the UK's leading supplier of LPG which is used by thousands of rural, off-gas grid businesses for heating purposes.

In these off-gas grid areas, LPG has a lower carbon footprint than commonly used alternative fuels including kerosene (heating oil) and coal. Kerosene sits outside the CCL and is zero-rated (tax free) for domestic and commercial use.

Evidence from the Committee on Climate Change (CCC) earlier this year indicates that current government climate and decarbonisation policies will hit SMEs hardest.

For small commercial firms, the CCC estimate that gas prices will increase in real terms by 15% to 2020 and 69% to 2030. Of this, low-carbon policy will be responsible for over half of the increase to 2020 and two-fifths of the total increase to 2030.

The main increase in low-carbon policy costs comes from an increase in the CCL in order to recoup revenue lost from scrapping the CRC for larger energy consumers, a rise in the CCL to match the electricity rate, and additional gas network costs.

Mr Blacklock concludes: "With Brexit casting a shadow over the economy, now is not the time to increase the environmental taxes on our SMEs.

"Our research shows that if these changes come in, the UK will have the highest carbon taxes anywhere in Europe. Current carbon taxes in the UK are complicated and are not equitably distributed across the economy.

"In the case of LPG, current policy perversely incentivises firms using gas for heating and cooking to move towards dirtier fuels such as kerosene which is at odds with government policy to reduce their use and decarbonise the rural economy."

Calor is a sponsor of the Rural Services Network.