- Britain has made impressive progress on decarbonisation – but the most painful part of the process lies ahead
- The consensus behind Net Zero could fracture if decarbonisation is perceived as unfair, or if it raises costs for consumers excessively
- Evidence shows that market mechanisms such as carbon pricing have been successful at delivering decarbonisation cost effectively
- ‘Pricing Pollution Properly’ calls for the Government to move towards an upstream carbon tax, pruning the current thicket of subsidies and regulations with a simple and powerful incentive to decarbonise
- This would involve no increase in overall taxation, with all the revenue raised returned to people’s pockets via a carbon dividend
The Government has made reaching Net Zero one of its core priorities. But for all the ambitious target-setting, the UK is still lacking in terms of concrete policies which will do the job.
In a new report, the Centre for Policy Studies urges the Prime Minister to reform and expand carbon pricing to ensure polluters are paying for the damage they cause, and to ensure that decarbonisation is done in a fair and responsible way.
‘Pricing Pollution Properly’, written by Eamonn Ives with a foreword by Stanley Johnson, notes how carbon pricing in the waste management and electricity generation sectors have been powerful decarbonisation tools, with emissions falling far more quickly than the economy as a whole.
However, the think tank warns the Prime Minister not make decarbonisation more expensive than it needs to be, or unpalatable for hardworking taxpayers. Policies to cut emissions must be cost-effective, and they must be fair, and carbon pricing offers a way of doing this.
Recognising that levying a carbon tax on carbon emitting companies will drive up operating costs, and therefore ultimately the cost to consumers, the CPS also recommends additional measures to mitigate any potentially regressive impacts of the carbon tax.
These could include a system of carbon dividends to rebate money back to citizens as cash; a carbon border adjustment mechanism (CBAM) to safeguard against the possibility of carbon leakage and retain a level playing field between domestic and foreign goods; and providing support for British innovators who are researching and developing the clean technological solutions to deliver a less carbon-intensive economy. It would also be important to introduce the tax in stages, to allow time to adapt.
Eamonn Ives, report author and Head of Energy and Environment at the Centre for Policy Studies, said:
‘Alongside levelling up, decarbonising the economy is a core priority of the current Government. Ensuring such targets are reached successfully will require a suite of new ideas and actions, across a range of policy areas. Carbon pricing and similar mechanisms have huge potential to achieve environmental goals, by putting the onus on to polluters to clean up their act.
‘By extending the reach of carbon pricing to more of the UK economy, sectors which have lagged behind those that have made an outsized contribution to decarbonisation in recent decades should begin to catch up, as they must if the UK is to meet Net Zero.
‘Carbon-pricing is a market-based mechanism with a proven track record of success, and as the UK looks to host COP26, it should think about how it can emphasise the role of carbon pricing in its plans to stop climate change.’
In his foreword to the report, Stanley Johnson, said:
‘If anyone is in doubt as to the practical importance of applying the Polluter Pays Principle, I suggest they read Eamonn Ives’ report for the CPS on Pricing Pollution Properly.
‘Mr Ives outlines with great clarity the urgency of applying the polluter pays principle to the carbon sector and the immense potential carbon taxes have as a tool for ensuring that the UK meets its stated climate goals, including both near and longer-term objectives.’
Phil Levermore of the Ebico Trust, said:
‘Eamonn’s timely report for the CPS makes clear the difficulties of implementing national Net-Zero policies without disproportionately burdening lower income households. His recommendation of an upstream carbon tax, redistributed in the form of a flat ‘Net Zero Dividend’ across the whole population, is an important initiative which would see carbon emissions reduced whilst mitigating the financial impact on poorer consumers.’