On Tuesday 11th January the Centre for Policy Studies produced a report entitled ‘Levelling-Up and Zeroing In’  

This report discusses how to create the right business and fiscal environment for levelling up and decarbonising our economy. The regions targeted in the levelling up agenda also happen to be the regions with the highest GHG emissions in England as historically they were and are the main industrial manufacturing areas. The report recommends six policies to achieve levelling up and Net Zero…..

  1. Make full expensing permanent and introduce a ‘green super deduction’ for clean business investment. Many British businesses will need to spend significant sums to decarbonise, such as on new equipment, machinery and plants. They should be able to fully offset these investments against their tax bills.
  2. Extend carbon pricing to more of the economy. The UK Emissions Trading System should be broadened out to include more of the economy – for instance, bringing agriculture, transport, and heating into its scope.
  3. Reform skills provision, beyond the young. Broadening the scope of the Apprenticeship Levy to make it much more flexible for employers to use, would accelerate the stated goal to improve and expand lifelong learning, while allowing workers to transition into clean jobs.
  4. Support investment into clean research and development. Funding for innovation needs to be maintained as well as examining how to better regulate emergent industries which could help deliver new technologies to cut greenhouse gases from sectors such as agriculture or in the energy supply.
  5. Adopt a carbon border tax. The carbon border tax, or ‘carbon border adjustment mechanism’ would provide a level of insurance against ‘carbon leakage’ and give British industries the reassurance they need that taking steps to decarbonise will not mean they are unfairly undercut by cheaper yet dirtier imports.
  6. Fund a bold new programme of technical universities. Revenues from the carbon border tax and wider carbon pricing should be used to create technical universities in areas in need of levelling up, to help equip workers for precisely the sorts of green jobs which will form the future green economy. Carbon revenues could also be channelled into economic development funds for local authorities.

The report takes the pragmatic stance of detailing how a carbon border tax would work with the current main carbon pricing system, ETS (as the EU is planning). CPS recently produced a report endorsing CI and the new report reiterates that this would be their preferred option. It could be pointed out that the plans to extend ETS to transport and buildings have already been curtailed!

The report states that…

In the longer term, the UK might wish to more comprehensively reform how it prices greenhouse gas emissions. In a recent report published by the Centre for Policy Studies – Pricing Pollution Properly – we mapped out a plan for an upstream carbon price which would uniformly price emissions across the vast majority of the economy. Widening the UK ETS to hitherto exempted sectors would no doubt be a quicker and politically easier way to apply carbon pricing to more of the economy, but this should not preclude the Government thinking about whether a new system, akin to that which we detailed, could be an even better way of doing carbon pricing.

 An expansion of emissions trading to more of the economy would generate significant amounts of revenue for the Treasury, through the sale of carbon credits. It is therefore critical to explore how this revenue should be spent. In Pricing Pollution Properly, we argued that this must not become a cash grab, increasing the costs to consumers and companies, and thereby alienating the former from the Net Zero agenda and making it harder for the latter to compete.Expansion of the ETS, or any other policies to reform how we price carbon, must therefore be revenue-neutral. For example, in our previous work we have advanced the idea of issuing carbon dividends to rebate any carbon revenues back to citizens.

Alternatively, the Government could explore reforming the tax system – to reduce the burden on both businesses and ordinary taxpayers. One possible reform would be to fund making full expensing permanent, as we have already detailed, which would lower the cost of the green transition, while likely boosting growth, wages and jobs. Whatever the Treasury might decide to do with any potential revenues, one primary consideration should be in relation to how it can offset any extra costs for the least affluent areas of the country, which the Government as a whole is focusing on levelling up.

The prevention of ‘carbon leakage’ is integral to the success of a Climate Income policy, either by offering rebates on exports so they can compete with other countries or a carbon border tax, imposing a carbon price on imports from countries without carbon pricing. This is especially important in countries like the UK  – the CPS report acknowledges that we owe a lot of our success in emissions reduction to the export of our manufacturing base. Hopefully the CPS’s support for argument for a carbon border tax will see its return to the government’s agenda and the current fuel price crisis will encourage the government to reconsider the merits of CI!