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Carbon tax would save industry and benefit UK taxpayers, Policy Exchange study finds

A report by British think tank Policy Exchange argues an industry-wide carbon tax would see UK taxpayers benefit from the industry while keeping the market going strong in the country

An industry-wide UK carbon tax paid by both domestic and international companies would fund a dividend that could be paid to taxpayers, according to a new study.

British think tank Policy Exchange believes an annual lump sum paid directly to the public could help raise support for fighting climate change.

It also argues a levy would prevent carbon leakage, which is where high carbon industries move to areas where carbon prices are lower.

The report, titled The Future of Carbon Pricing: Implementing an independent carbon tax with dividends in the UK, included a cross-political-party foreword by Labour Chancellor Lord Darling of Roulanish and former Conservative Foreign Secretary Lord Hague.

They wrote: “The UK has consistently led the world in responding to the threat of dangerous global warming.

“By signing into law the Climate Change Act in 2008, with cross-party support, we were the first country to set legally-binding targets for reductions in greenhouse gas emissions.

“However, as this report by Policy Exchange shows, many challenges remain, most notably that of carbon leakage, whereby energy-intensive industries move abroad to avoid environmental taxes.

“Cleaning up our own energy system will mean little if we simply outsource our emissions.

“In the absence of a unified global carbon tax, border carbon adjustments are essential to ensure that British businesses are operating on a level playing field with those that are foreign-based.

“This is a clear plan for how this would work in practice.

“In our drive to decarbonise the economy, it is important that we take people with us. If carbon taxes are seen to unduly punish that average citizen, they will fail.

“That is why Policy Exchange’s idea of recycling the revenue from carbon taxation back to the people in the form of a ‘carbon dividend’ is worth exploring.

“It would make a carbon tax both progressive and popular.”

carbon tax
Alistair Maclean Darling

 

What would the carbon tax look like?

Policy Exchange laid out a number of features pertaining to its carbon tax.

It argued it should:

  • Be steadily rising and economy-wide, paid by companies that sell fossil fuels in the UK (though ordinary citizens will be protected from price rises through the recycling of tax revenue back into their pockets).

 

  • Initially continue at the level at which the UK leaves the EU ETS (emissions trading system) in 2021, and steadily rise at a rate set by an independent body such as the Climate Change Committee.

 

  • Be structured around border carbon adjustments, to create a level playing field for domestic and international producers so that companies which export carbon intensive products into the UK will be subject to the same level of carbon tax as domestic producers, helping industries like the British steel sector.

 

  • Fund dividends from carbon taxation that are returned directly to the public in an annual lump sum, to lock in political and public support for fighting climate change.

 

  • Allow a rationalisation of environment regulations without reducing environmental protection, as an economy-wide carbon tax will make a number of existing carbon taxes and policies redundant.