A new carbon tax – paid by both domestic and international producers – would prevent carbon leakage, level the playing field for UK heavy industry, fund a dividend to be paid to taxpayers and tackle climate change.
A new report from the Policy Exchange – a London-based think-tank – recommends that, although Brexit makes it likely the UK will leave initiatives overseen by the ECJ such as the EU’s Emissions Trading Scheme, the UK should remain a member of the ETS until the end of the third trading period at the start of 2021.
At this point, Policy Exchange recommends that the UK should take the opportunity to innovate in carbon pricing with an independent carbon tax which would:
Be steadily rising and economy-wide, paid by companies that sell fossil fuels in the UK (though ordinary citizens will be protected from price rises through the recycling of tax revenue back into their pockets). The tax would initially continue at the level at which the UK leaves the EU ETS in 2021, and steadily rise at a rate set by an independent body such as the Climate Change Committee to give the policy institutional certainty and ‘bankability’:
Be structured around border carbon adjustments, to create a level playing field for domestic and international producers so that companies which export carbon intensive products into the UK will be subject to the same level of carbon tax as domestic producers, helping industries like the UK steel sector:
Fund dividends from carbon taxation that are returned directly to the public in an annual lump sum, to lock in political and public support for fighting climate change. People would be able to borrow against their future dividend payments for investments in energy efficiency:
Allow a rationalisation of environment regulations without reducing environmental protection, as an economy-wide carbon tax will make a number of existing carbon taxes and policies redundant. Eventually at least 10 direct carbon taxes would be rationalised into a single unified price paid for emitting carbon dioxide and other greenhouse gases in the UK. For example, we would no longer need the Climate Change Levy, but we should continue with energy efficiency standards and energy labelling.
In a foreword to the report, former Labour Chancellor Lord Alistair Darling states: “By signing into law the Climate Change Act in 2008, we were the first country to set legally binding targets for reductions in greenhouse gas emissions.
“However many challenges remain, most notably that of carbon leakage whereby energy intensive industries move abroad to avoid environmental taxes.
“Cleaning up our own energy system will mean little if we simply outsource our emissions. In the absence of a unified global carbon tax, border carbon adjustments are essential to ensure that UK businesses are operating on a level playing field with those that are foreign-based. This is a clear plan for how this would work in practice.”
18 Jul 2018