Rishi Sunak is examining proposals for a UK-wide carbon tax that could raise billions of pounds while encouraging the drive towards net-zero emissions.
The chancellor is seeking to replace existing EU carbon-reduction schemes with the new tax when the transition period finishes at the end of the year.
Treasury officials are also looking at longer-term proposals to extend the tax to other areas including domestic gas and agriculture, which could raise more than £25 billion by 2030, supporters say.
A Whitehall source said Mr Sunak saw the idea as a way of “raising revenue while cutting emissions”. Another added that the idea was getting “increasing traction” across government.
However, the move has alarmed some environmental groups who fear a carbon tax could become subject to political pressure, like fuel duty, which could make it less likely that Britain meets its 2050 net-zero target.
The UK is part of the EU’s emissions trading scheme (ETS), which caps the amount of greenhouse gases that can be emitted by energy-intensive industries and electricity generators. Companies can buy or sell emission allowances, which rise over time, effectively putting a price on CO2 and encouraging investment in decarbonisation.
However the UK will cease to be a member of the scheme at the end of the year and must decide whether to create its own ETS or switch to an alternative model.