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‘Government decision to drop carbon tax is a small step in the right direction’

Global Warming Policy Forum

London, 25 March: The Global Warming Policy Forum (GWPF) has welcomed the government’s decision to drop the introduction of a carbon tax as a small step in the right direction. 

carbon tax cartoon

In contrast to most UK think tanks, NGOs and the renewable energy lobby, the GWPF has repeatedly warned that adopting carbon taxes would threaten the UK’s economic recovery, burden families and businesses and risked an electoral debacle on a par with the “Poll Tax” fiasco.

On Tuesday, the Treasury published the final outcome of its consultation on a UK carbon tax, confirming that the government has decided against a carbon tax and introducing a UK emissions trading system (UK ETS) instead:

The government is not taking forward the Carbon Emissions Tax (CET) in light of the announcement that it would implement a UK Emissions Trading System to replace its participation in the EU Emissions Trading System..”

The proposed levels of carbon tax would would have put about £3 billion a year on domestic gas and oil heating bills, exacerbating an already serious Fuel Poverty problem. 

While the Government’s rejection of a carbon tax is welcome, there is a serious risk that the UK’s Emissions Trading Scheme (ETS) could end up being much more expensive than the EU’s ETS. 

According to the OBR, the EU ETS cost the UK £1.4 billion in 2019. For comparison, the UK government’s own UK Carbon Pricing Impact Assessment projection gives estimates of what revenue would have been under the EU ETS and will be under the UK ETS. 

The Future of UK Carbon Pricing Impact Assessment, June 2020, p.23

The EU ETS counterfactual ranges between £1bn and £7.6bn, which is consistent with the OBR figure. However, the UK ETS will range between £4.5 billion and £10 billion. 

GWPF director Benny Peiser said: 

It is very welcome that the Treasury has listened to the voices of reason and realism. Forcing costly carbon taxes on beleaguered households and businesses would have risked public outrage and political upheaval at a time when Boris Johnson struggles to revive the UK economy. 

However, if the government mismanages its Emissions Trading System, it risks making it significantly more expensive than the EU ETS. The last thing the UK needs is inflicting serious disadvantages on UK businesses which need to compete with those in the EU, never mind with competitors in the rest of the world.”