Inflation and the cost of running a net zero vs fossil fuel household

Energy prices contribute to the ‘basket’ of goods and services that the ONS uses to calculate inflation figures. The ongoing gas and oil crises have driven gas, petrol and electricity prices to record levels, contributing over a third (3.2%) of the 9.1% consumer price inflation (CPI) rate reported by the ONS in June for the year to May 2022.

This inflation figure applies to average consumption of energy, and it reflects the fact that most households still rely on petrol or diesel for their cars and gas for their heating and hot water. This new analysis compares the inflation rate for households that have switched to electric heat pumps and electric cars and have added a layer of insulation to their homes.

Key findings

• Households that avoid using oil and gas and instead have a heat pump, an electric car and better insulation, were saving an average £1,000 a year in May’s prices, up from a saving of £620 a year earlier.
• In the year to May 2022:
  • For households that have installed improved efficiency by installing insulation and replaced fossil fuels by switching to electric heat pumps and electric vehicles, the contribution of energy prices to the overall inflation rate was almost a third lower than for homes with average insulation, a gas boiler and a petrol car.
  • Gas price inflation of 97% under the price cap that changed in April was almost double that of electricity, such that heating an efficient home with a heat pump is now more than £220 cheaper per year than heating an average home with a gas boiler.
  • Petrol price inflation of 30% increased the gap in running costs between electric and petrol cars, with an EV charged at home being £780 a year cheaper to run.
• The savings from avoiding fossil fuels continue to increase almost daily as petrol prices continue to rise, whilst electricity prices remain at the same level due to the price cap, with the saving for an EV currently at £960 a year, taking the total savings for energy and fuel to £1,180 a year as of the end of June.

• With gas prices set to rise again in October, followed to some extent by electricity prices, and with road fuel also forecast to become even more expensive than currently, the savings for households that don’t use fossil fuels could grow to almost £1,600 a year.