Policy POsItions.
Introducing a carbon charge in the uk.
The UK’s current approach to carbon pricing is sporadic and inconsistent. It does not align to the UK’s 2050 net zero target, and it does not account for the emissions that the UK imports from other countries via trade. It also only covers emissions across about a third of our economy, ensuring that the biggest polluters are issued with ‘free allowances,’ whilst consumers are left to pay.
Moreover, coverage looks set to dwindle further as sectors which aren’t covered by carbon pricing (such as agriculture, international aviation and shipping) continue to increase their share of the UK’s emissions towards 2050, while other sectors decarbonise. Indeed, by 2030, the current sectors covered by the UK ETS will only cover 18% of UK territorial emissions. This highlights the need to expand the scope of UK carbon pricing to ensure a meaningful, economy-wide price signal.
Our policy work has sought to address this, by developing proposals for a fair and effective carbon pricing system that accounts for a greater proportion of UK emissions, and compensates households for unmanageable costs. Policy development was supported by the Zero Carbon Commission, whose recommendations are summarised below.
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Put a proper price on pollution
Simplify the UK’s inconsistent carbon pricing landscape by placing a charge on every tonne of CO₂ (and equivalent greenhouses gases) that are emitted in the UK. This will catalyse the transition to net zero by ensuring that all actors - individuals, businesses, manufacturers and policy makers - prioritise cheaper and less polluting options.
What is a carbon charge?
A Carbon Charge (or tax) is a form of pollution tax. It requires people who produce, distribute, or use fossil fuels, or whose activities result in other types of greenhouse gas emissions, to pay for every tonne of greenhouse gases that enter our atmosphere. This incentivises them to switch to other, lower emissions alternative. There are lots of different ways of levying a carbon charge. Our proposal recomends that it should repurpose or replace existing carbon prices - and be introduced to sectors of the economy that are not currently covered by carbon pricing, such as agriculture. It should reach £75/tCO₂e by 2030, in line with the price deemed necessary to achieve net zero by 2050.
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help fund a green and just recovery
Use the revenue from a carbon charge - which could reach £27bn annually by 2030 - to support a green recovery from COVID-19 that facilitates the UK’s transition to net zero. This should include:
a) Protecting the public from adverse cost impacts (e.g through funding a ‘carbon dividend’ for certain households, and financing energy efficiency improvements in homes).
b) Investing in decarbonisation across the economy (e.g through funding the development of low-carbon technologies, and rewarding carbon removal where it occurs).
See our papers on Addressing the distributional impacts of a carbon charge and Delivering an equitable net zero transition (produced in collaboration with IPPR and the Joseph Rowntree Foundation) for further details.
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Apply a Border charge
The UK imports more emissions per capita than any other G7 nation. Applying a border charge could help reduce the amount of emissions that are ‘offshored,' whilst maintaining the competitiveness of UK production as we decarbonise the economy.
This can be done through a ‘Border Carbon Adjustment’ (BCA) or similar mechanism, which charges products the equivalent of the UK carbon charge when they enter the country, and rebates domestic manufacturers the carbon charge cost when they export. The EU has just reached an agreement to introduce a BCA on selected imports to the bloc by 2026, and calls for the UK government to follow suit in developing its own version of a BCA are growing, most notably from Parliament's Environmental Audit Committee.
Our research on BCAs covers the technicalities and politics of their implementation, as well as their role in catalysing progress towards a global agreement on carbon pricing.
Why do we need a BCA?
Implementing a BCA would enable us to raise domestic pricing ambition whilst maintaining the competitiveness of trade-expose industry. This would prevent ‘offshoring’ of emissions - which is not good from a domestic manufacturing perspective nor an environmental one - and would protect jobs as we facilitate a low-carbon transition for workers.
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Introduce stronger climate protections
Introduce stronger legislation to ensure that carbon tax trajectories and other environmental policies are protected from short-term cycles of government. Legislation should:
Strengthen the government’s accountability to parliament and the public in regards to its net zero milestones, and progress towards the 2050 target.
Promote net zero-aligned decision-making across different government departments.
Designate formal responsibility for the communication of climate policy in order to promote engagement amongst the public.
Policy Briefs.
Our policy briefs offer insight and analysis to help inform ongoing policy development as relates to carbon pricing, exploring a broad range of topics including lessons from carbon pricing schemes around the world, emissions accounting, carbon offsetting and global carbon pricing agreements.