Carbon pricing in the UK

House of Parliament

The UK already has a carbon tax. It’s known as the Carbon Price Floor (CPF) and was introduced in 2013 since the carbon price being set by the EU Emissions Trading System (EU ETS) wasn’t high enough to have the required effect on emissions.

The CPF doesn’t tax all fossil fuels, just those used to generate electricity, and it is paid by energy generators who will then pass on the price to consumers in the form of higher electricity bills, and since all businesses use electricity, it may not just be electricity bills that go up. For those already struggling to make ends meet, this can make things even tougher. Unlike fee and dividend, there is no mechanism to return the revenue to citizens to help them cope with these price rises.

The doubling of the floor from £9 to £18/tCO2 in April 2015 has been a major factor in driving coal out of the UK electricity mix.

Carbon Brief

Though our carbon tax has played a major role in the demise of coal, the dirtiest of all fossil fuels, some have warned of the risk of coal making a comeback if gas prices rise in the coming years. But instead of rising to £30 per tonne of CO2 by 2020, the price was frozen at £18 in 2015. Part of the reason for that may have been the fear that a higher carbon price would have left the just about managings (JAMs) not quite managing.

This is why we need to give the tax revenue back to the people, and the fairest and most transparent way of doing that is through regular dividend payments so people see exactly what they’re getting. These could be distributed by HMRC for those on PAYE or self-assessment, appearing as a tax rebate, and by the Benefits Agency for those on benefits. That would cover most of us, and others would be able to apply to get their dividend.

The other problem with raising the carbon price is the effect this would have on certain high energy industries such as the chemicals industry and steel. A higher carbon price could have a big effect on their profit margins and impact their competitiveness against companies operating in regions with a lower price on carbon or no price on carbon at all. The way to resolve this would be to introduce border adjustments, or carbon tariffs, so we apply our carbon tax to imported goods and rebate it on exports.

Carbon pricing after Brexit

In October 2018 think tank the Policy Exchange launched a document titled The Future of Carbon Pricing: Implementing an independent carbon tax with dividends in the UK. This is essentially CCL’s fee and dividend policy with border carbon adjustments

to ensure that we can raise our own carbon price without businesses offshoring their emissions

Once outside the EU, the UK would be able to put in place border adjustments, which ought to be compatible with WTO rules so long as they don’t discriminate between like products based on the country of production, and if you’re applying the same carbon price to domestic producers as to foreign ones to provide a level playing field, that would not be discriminatory.

But what if we don’t Brexit?

The EU has been considering putting in place its own border adjustments to protect its businesses from competitors in countries that don’t price carbon and in particular, competitors in countries that don’t even accept the Paris Agreement.

we have to put in place a taxation at the border for those who decide not to make the same environmental choice.

Emmanuel Macron