Government mulls carbon tax push, as criticism mounts over 'contemptuous' coal mine decision

Reports suggest Number 10 is considering a radical overhaul of the UK's carbon taxes in a bid to spark global climate action ahead of COP26 Summit

Number 10 has instructed every department in government to propose a price for carbon emissions, in a move that could provide the basis for a major extension of the UK's carbon tax regime.

The Times reported this morning that it has seen a Whitehall memo that confirms Number 10 and the Treasury have asked all departments to bring forward plans for a carbon pricing scheme that would cover all areas of the economy, potentially leading to new levies on carbon intensive products and services, such as meat and dairy, and gas for heating, which are currently subject to negligible or non-existent environmental taxes.

"The Chancellor and the Prime Minister want a sector-by-sector view on how we could implement some form of carbon pricing and an overall roadmap to deliver [it] in the next decade," the memo reportedly states. Options under consideration include a "direct carbon tax", it added. Proposals are expected to be submitted by departments before the end of April.

The paper also reported that plans for new carbon taxes that adhere to the "polluter pays" principle could form a central plank of the government's diplomatic strategy ahead of the crucial COP26 Climate Summit in Glasgow this autumn.

"The big driver for this is if you can get a decent chunk of countries to agree to some kind of carbon price floor then you can finally have an [international] system that encompasses all the big competitive industries and potentially agriculture," one source close to the government's thinking told The Times.

Carbon pricing is set to be a key issue at the COP26 Summit, as governments explore how to accelerate decarbonisation efforts without creating a patchwork of carbon pricing regimes that encourages polluting businesses to relocate to jurisdictions with the no carbon taxes in place.

China recently launched its long awaited national carbon market, while Joe Biden's victory has reignited speculation about the prospects for the US to introduce a new carbon tax. Meanwhile, negotiations over how to trade carbon allowances and encourage investment in negative emissions projects remain a major sticking point in the talks. And at the same time the EU is exploring plans for new carbon border tariffs that would impose a levy on imports from regions with no carbon pricing in place and help apply pressure for all governments to introduce such schemes.

However, carbon taxes and pricing regimes remain hugely contentious and while green groups broadly welcomed news the government is considering new carbon taxes campaigners also cautioned that poorly designed schemes risked disproportionately impacting poorer households and triggering a public backlash against climate policies.

Labour's Shadow Chancellor Anneliese Dodds warned the government had to ensure any taxes were fairly distributed. "We will consider any longer-term changes to the tax system carefully, bearing in mind that the UK is way off meeting its carbon-cutting targets," she said. "Any change must be fair, and go hand in hand with action to shore up family finances and improve living standards after over a decade of irresponsible decisions by the Conservatives."

Experts have argued any reforms should be initially focused on correcting flaws in the current carbon pricing regime and should be accompanied by incentives and tax breaks that make it easy for people to switch away from high carbon products and services so as to minimise their exposure to any new levies.

For example, writing on Twitter this morning Greg Jackson, founder of Octopus Energy, argued that "shifting taxes from elec to gas (poss phased) will be cost-neutral in short term and will save households a fortune in the long term as we increasingly electrify our energy".

"[The] current system grossly distorts energy bills and makes elec way too expensive," he added.

Meanwhile, Eamonn Ives, senior researcher at the Centre for Policy Studies, welcomed the government's interest in carbon taxes but argued any new levies should be accompanied by tax cuts elsewhere. "It's encouraging to see the Government express its interest in carbon taxes - which have been proven to be powerful tools in the fight against climate change, but are woefully underutilised," he said. "The Government should also seek to cut other taxes - such as income tax - or explore mechanisms such as carbon dividend payments to redistribute the revenues it raises. This would ensure the carbon tax would not be regressive, and mean that the costs of transitioning to a Net Zero economy are not shouldered by the least well off in society."

His comments were echoed by Hannah Dillon, head of the Zero Carbon Campaign, which has been calling for widespread reforms to carbon pricing. "We're delighted the government has accepted our proposals to explore the role of sector-specific carbon pricing in driving the UK's transition towards net zero," she said. "Our current system is not fit for purpose - it penalises those who can least afford it, and protects the biggest polluters from paying for the damage they do. Our Commissioners have set out how this can change, by introducing stronger, sector-specific emission pricing that supports (rather than penalises) low-income households through the transition. The UK's ambition on carbon pricing will set a global precedent at COP26 - it's great to know that the government is taking this responsibility seriously."