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The Gas Shipper Obligation: What it was and why it was scrapped
The Gas Shipper Obligation was a proposed levy on gas shippers, which would have been passed on to domestic and business gas bills to fund green hydrogen projects.
On 28 October 2026, the government announced that the Gas Shipper Obligation had been scrapped and that all green hydrogen projects would be funded from general taxation.
This guide explains what the Gas Shipper Obligation was and how it would have worked. Here’s what we cover:
- What was the Gas Shipper Obligation?
- Why was the Gas Shipper Obligation scrapped?
- Why was the Gas Shipper Obligation being considered?
- What is a gas shipper, and who would have paid the GSO?
- How would the GSO have affected business gas bills?
What was the Gas Shipper Obligation?
The Gas Shipper Obligation (GSO) was a planned levy on licensed gas shippers in Great Britain. It was intended to raise money to fund the production of low-carbon hydrogen.
The levy was due to start in 2027, replacing the taxpayer funding that currently supports hydrogen projects. Gas shippers would have passed the cost on through business and household gas bills.
It was estimated to add between 0.027p/kWh and 0.047p/kWh to the unit cost of mains gas for all consumers.
Who would have administered the Gas Shipper Obligation?
The government proposed that the Low Carbon Contracts Company (LCCC) should administer the Gas Shipper Obligation.
The LCCC already manages other low-carbon support schemes, such as Contracts for Difference and the nuclear RAB scheme.
Was the GSO the same as the Green Gas Levy?
No. The two levies were designed to fund different types of low-carbon gas.
The Green Gas Levy (GGL) has been in place since 2021. It pays for the Green Gas Support Scheme, which helps fund the injection of biomethane into the gas grid. Gas suppliers pay the levy as a fixed charge for each meter they supply.
In contrast, the GSO was a proposed new levy to fund low-carbon hydrogen production.
Why was the Gas Shipper Obligation scrapped?
The Gas Shipper Obligation was scrapped in the government’s 2026 Budget to provide savings for businesses and households across the country.
Scrapping the scheme means business gas bills will be around 2% lower than they would have been if the GSO had gone ahead.
At Business Energy Deals, we can help companies make further savings with our free, no-obligation business gas comparison service.
Why was the Gas Shipper Obligation being considered?
The Gas Shipper Obligation aimed to give the UK a long-term, industry-funded way to subsidise low-carbon hydrogen production.
Low-carbon hydrogen is expected to replace natural gas at industrial facilities where electrification is not possible.
Hydrogen Production Business Model
Producing low-carbon hydrogen currently costs much more than extracting or importing natural gas.
To encourage production, the government introduced the Hydrogen Production Business Model (HPBM), which guarantees producers an artificially high price through low-carbon hydrogen production contracts.
This scheme uses a similar price guarantee mechanism to the Contracts for Difference scheme for renewable electricity.
HAR1 projects
In December 2024, contracts from the first Hydrogen Allocation Round (HAR1) were signed under the Hydrogen Production Business Model. Eleven projects joined the scheme, with a total capacity of 125 MW and an average strike price of £241/MWh.
The contracts guarantee a price for hydrogen delivered over 15 years of production and are expected to require an average of £150m in annual funding.
Payments for the HAR1 projects are funded through general taxation.
Plans to fund the HPBM through the GSO
The Gas Shipper Obligation was the government’s proposal to fund the HAR1 contracts and future rounds of the Hydrogen Production Business Model.
In October 2026, the government announced that current and future hydrogen production contracts would instead be funded from general taxation.
What is a gas shipper, and who would have paid the GSO?
This section explains the role of gas shippers in the market and why they were expected to pay the Gas Shipper Obligation.
The role of the gas shipper
Gas shipping is a specific role in the wholesale gas market that is licensed by Ofgem, the energy regulator.
A gas shipper’s job is to make sure gas gets from where it’s produced to the businesses and homes that use it. Shippers do this by:
- Buying gas on the wholesale market.
- Paying national, regional and independent gas transporters, the companies that operate the mains network, to transport the gas.
- Selling the gas to licensed gas suppliers, who then supply it to end consumers.
In practice, the best business energy suppliers act as both gas shipper and supplier, which allows them to buy gas directly from the wholesale market.
Why gas shippers were expected to pay the GSO
The Energy Act 2023 gives the government the power to fund hydrogen production through a levy on licensed gas shippers in Great Britain.
The practical reasons for choosing gas shippers to pay the GSO were:
- Gas shippers are involved in delivering all gas on the network, including to industrial, commercial and domestic end users.
- There are fewer shippers than suppliers, which would have made the scheme easier to administer.
- The gas industry already collects the data that would have been needed to calculate each shipper’s liability under the GSO.
How would the Gas Shipper Obligation have been calculated?
The Government’s consultation on the funding mechanism for the Hydrogen Production Business Model set out the following proposed method for calculating the GSO:
1. Calculating payments to hydrogen producers
The Low Carbon Contracts Company (LCCC) calculates how much it expects to pay each participating hydrogen producer, as follows:
Payments to hydrogen producer = (Agreed strike price – Reference price) x Volume of hydrogen sold
The reference price is the higher of the natural gas market price and the price at which the producer actually sells its hydrogen.
The formula effectively guarantees that the hydrogen producer receives the strike price for the hydrogen it sells.
The LCCC carries out this calculation for each participant and adds the results together to work out the total payments required each month.
2. Add a safety margin and operating costs
Since the calculation is based on forecasts of hydrogen sales and prices, the LCCC would have added a margin on top to make sure it had enough funds to make payments. It would also have added a charge to cover the cost of administering the scheme.
The LCCC’s estimate would then have been adjusted over time as it received data on actual sales volumes.
3. Calculate the total gas shipper liability
The total funding required from steps 1 and 2 would have been divided by the total volume of gas delivered by gas shippers.
The LCCC would have received data on the volume of gas consumed by each domestic and business gas connection on Great Britain’s gas network. This would have included data from:
- Industrial sites connected directly to the National Transmission System, such as gas fired power stations.
- Business gas meters connected to regional gas distribution networks.
- Domestic gas meters connected to regional gas distribution networks.
The calculation would have given a GSO cost for each kWh of gas a shipper delivered through the network.
4. Calculate the charge for each gas shipper
To work out what each shipper would pay, the amount of gas it delivered would have been multiplied by the GSO rate per kWh from step 3.
Example GSO calculation
The table below shows an example of how the Gas Shipper Obligation was expected to work in practice over one month:
| Step | Item | Calculation | Result |
|---|---|---|---|
| 1. Hydrogen producer payments | Producer A | (£240/MWh − £60/MWh) × 20,000 MWh | £3,600,000 |
| Producer B | (£260/MWh − £70/MWh) × 15,000 MWh | £2,850,000 | |
| Producer C | (£220/MWh − £60/MWh) × 25,000 MWh | £4,000,000 | |
| Total producer payments | £3,600,000 + £2,850,000 + £4,000,000 | £10,450,000 | |
| 2. Safety margin and operating costs | Safety margin (10%) | £10,450,000 × 10% | £1,045,000 |
| Operating costs | Fixed monthly cost | £105,000 | |
| Total amount to collect | £10,450,000 + £1,045,000 + £105,000 | £11,600,000 | |
| 3. GSO liability per kWh | Total gas delivered in the month | All shippers combined | 50,000,000,000 kWh |
| GSO liability per kWh | £11,600,000 ÷ 50,000,000,000 kWh | 0.0232p/kWh | |
| 4. Charge for each gas shipper | Shipper 1 | 20,000,000,000 kWh × 0.0232p/kWh | £4,640,000 |
| Shipper 2 | 15,000,000,000 kWh × 0.0232p/kWh | £3,480,000 | |
| Shipper 3 | 10,000,000,000 kWh × 0.0232p/kWh | £2,320,000 | |
| Shipper 4 | 5,000,000,000 kWh × 0.0232p/kWh | £1,160,000 | |
| Total collected | Sum of all shippers | £11,600,000 |
In this example, end consumers would ultimately have paid a unit charge of 0.0232p/kWh. Shippers were expected to include the GSO cost in their charges to suppliers, who would then pass it on through the tariffs they offered consumers.
How would the GSO have affected business gas bills?
Unlike the Climate Change Levy, the Gas Shipper Obligation would not have been charged directly to businesses.
Instead, gas shippers would have paid the GSO and passed the cost on to licensed business gas suppliers. Those suppliers would, in turn, have added it to their customers’ bills.
How much would the GSO have increased business gas bills?
In October 2026, the government announced that it was scrapping the Gas Shipper Obligation. This means it will not affect business gas bills.
In its consultation, the government estimated that the GSO would add around 2% to overall business gas prices. It was expected to affect only unit rates, leaving business gas standing charges unchanged.
Were there any exemptions from the Gas Shipper Obligation?
No exemptions from the Gas Shipper Obligation were ever confirmed.
However, the government’s consultation stated that it was considering exempting the following groups:
- Energy-intensive industries (EIIs): The steel, glass, ceramics and chemical industries rely heavily on gas. This exemption could have worked alongside the British Industry Supercharger, which provides cheaper business electricity prices for these users.
- Blue hydrogen producers: Gas supplied to hydrogen producers that use carbon capture could also have been exempt.
- Green gas suppliers: Suppliers that could prove they supplied at least 95% biomethane to their customers, using green gas certification, could have been exempt.
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