Green tariffs: what's the extra cost and where does the money go?

You don't have to put up a wind turbine to get clean power - just pick a green tariff. Martin Hickman gives the lowdown

Want to do your bit to counter climate change? You can feel powerless when it comes to energy. About two thirds of the electricity in our homes is generated by burning coal and gas in power stations, which pump out two tons of carbon dioxide per home each year.

Much has been made of the potential to replace this dirty "brown" energy with the clean "green" power of the sun and wind.

But lavishing up to £15,000 installing solar panels or a wind turbine in your home is not always a viable option; planning or financial constraints and the hassle of changing the boiler can deter people.

So what can you do to switch to cleaner power?

One simple way is to buy "green energy". All the big energy companies and a few specialist renewables operators offer green energy tariffs. Under these schemes, in return for your business, your energy supplier will make a contribution to an environmental cause, or buy carbon offsets or renewable energy.

Environmentalists say such tariffs drive the market in renewable power, which comprises only 4.2 per cent of British electricity generation, despite the UK's enviable location for wind and hydro power. Gas accounts for 37 per cent, coal 34 per cent and nuclear 20 per cent.

Switching from dirty fuels to cleaner energy takes a few minutes online and does not require any new pipes, wires or a new meter. The electricity entering the home is the same, but your bills help the environment.

The only disadvantage is the extra cost (about £100 a year), though the pale green tariffs can be cheaper than your existing supplier.

So why, despite the spectre of climate change, and the fact that 64 per cent of people say they would consider switching to "green" energy, have only 1 per cent of the UK's 25 million households done so? Maybe they don't know about it. The six big companies - British Gas, Powergen, npower, EDF, Scottish Power, and Scottish and Southern - barely advertise their schemes.

The power industry does not seem keen to draw attention to the pollution presently emitted by the way we power our homes.

More worryingly, the power companies have been accused of misleading customers about the greenness of their green tariffs. Critics saygreen tariffs often amount to no more than a "repackaging" of the companies' legal obligation to buy a minimum amount of renewable energy.

Friends of the Earth, Greenpeace and the National Consumer Council claim the sleight of hand is linked to the operation of the Government's scheme to increase clean power, the 2002 Renewable Obligations Order.

Under the order, power companies must buy a certain amount of their energy from renewable sources, such as wind and solar power. The rate is currently 7.9 per cent but will rise annually to 10.4 per cent in 2010.

If the companies don't manage to supply enough power from renewable sources - and most don't - they can buy credits (Renewable Obligations Certificates) to make up the shortfall from companies that do.

Critics complain this allows big power companies to put a green gloss on their grudging adoption of their legal obligations. By offering a green option, they can appear to be virtuous without buying more wind or wave power to supply these "green" customers. They have to buy the energy anyway and in fact are buying less than the Government stipulates, and some of them are charging customers more for the privilege.

Another little known side effect of the system: some of the renewable power sold by green providers is effectively re-sold to the Big Six.

Take the case of Ecotricity. This renewable company generates 17 per cent of its energy from wind parks, and then sells this clean energy on to its eco-customers.

But this wholesome company legally can - and does - sell certificates for its excess renewable energy, that which surpasses the Government quota. Its customers are big conventional power companies thatare trying to fulfil their quotas.

Renewables companies say that if they did not sell on some of their credits, they would have to hike customers' bills. Critics insist that these loopholes tarnish the emergingmarket for green energy.

The National Consumer Council (NCC) is perturbed that companies play up their green credentials, despite only meeting their legal obligations. In a report in December, the watchdog criticised the majority of schemes - especially cheap ones offered by big energy companies.

British Gas, for instance, was singled out for not going beyond its legal duty; the environmental benefits to its 80,000 green-tariff customers were "very unclear".

The company's new managing director, Phil Bentley, acknowledged the problem at a recent press conference. "We will soon be announcing a new green tariff, which is even greener, as opposed to some other tariffs, which are a bit grey," he said.

Ofgem, the electricity regulator, . will soon issue new guidelines to companies. A spokesman said: "Suppliers really must demonstrate that their green tariffs go beyond the Renewables Obligation."

Greenpeace agrees that companies should improve their behaviour. "Sometimes they charge more for 'green' tariffs than for 'brown' electricity; sometimes they would have had to do it anyway but try to make themselves look green," said climate change campaigner Jim Footner.

Despite the confusion, environmentalists say that green energy is the key to Britain's sustainability.

According to utility website Uswitch, the UK has just 1 per cent of the world's population yet produces 2.3 per cent of the world's CO2, with more than a quarter (27 per cent) of these carbon emissions coming from UK homes.

Greenpeace says householders must go green on energy if the Government is to meet its target for cutting CO2 emissions from 1990 levels by 20 per cent by 2010.

For home-owners who want to harness green power, there are a few tariffs that offer "additionality" - the supply of extra renewables on top of the Government minimum.

Ten of the 12 green supply tariffs the watchdog examined did not surpass their legal obligations, but two did - Good Energy's and Scottish & Southern's RSPB Energy.

Scottish & Southern makes a £10 donation to the Royal Society for the Protection of Birds (RSPB) for every new customer on the tariff and contributes a further £5 each year they remain supplied. The money is used to help buy land for nature reserves. The energy comes from 100 per cent renewable sources.

Good Energy "retires" some of its renewables certificates. And it buys and supplies 100 per cent renewable energy from small and medium-sized projects such as solar roof panels.

The NCC said of its tariff: "For those customers who want a green electricity supply, pure and simple, this is probably the closest they will get to it."