Blog: Is a UK Carbon Tax the catalyst we need to stimulate a green recovery?

An effective carbon charge could incentivise the UK’s transition to net zero whilst providing the funds required to kickstart a green and just recovery from COVID-19

The time has come for us to decide what we want a post COVID-19 society to look like, and I hope we can all agree that a world in which businesses continue to profit from pumping vast amounts of carbon dioxide into the atmosphere should not be a part of that picture. That is why the Zero Carbon Campaign will be continuing to advocate for stronger and more extensive carbon pricing across the UK economy, as well as considering the substantial role that a carbon charge might play in kick-starting the much called for 'green recovery’ from COVID-19.

Calls for change are coming from all quarters

From the Secretary General of the United Nations to the President of the European Commission, leaders around the world have acknowledged the need to ‘build back better’, encouraging Governments to prioritise the implementation of a ‘green recovery’, ensuring that - in responding to the largest crisis that the world has ever navigated in peacetime - we do not row back against the tentative progress that has been made in tackling the largest crisis of all time; that of climate and ecological breakdown.

Helpfully, momentum is building. A growing coalition of corporates have joined the aptly named ‘European Alliance for Green Recovery’, and a number of leading economists have argued that a green recovery offers the best economic returns for Government spending. But it is not just the echelons of power who are spouting such rhetoric. Calls for change have been backed up in the court of public opinion, with just nine per cent of the Great British Public wanting to return to life as normal once the current crisis is over. It seems that, after many years of fabled ‘last chances’ and critical 'points of no return’, the time has finally come for us to make the ultimate decision about the future of our planet.

A carbon price can give businesses the confidence to invest

In some regards - given the fall in the EU’s emissions trading scheme (ETS) price, the dramatic downturn in the global price of oil, and the role that air pollution has played in susceptibility to COVID-19 - recent events have strengthened the case for implementing stronger and more consistent carbon pricing in the UK. We need to fund and implement a green recovery, and what better way than addressing the fundamental market failure that has neglected to effectively account for the externalities of carbon in the price of goods and services? As a recent report by LSE has found, an effective carbon charge - accompanied by revenue recycling schemes such as household dividend payments - may well be the catalyst the UK needs to ensure a more resilient future.

The benefits of carbon pricing have been covered extensively, but they are worth briefly reconsidering here. We need look no further than the role that the Carbon Price Floor has played in weaning the UK off its dependence on coal to recognise the effects that pricing carbon and equivalent greenhouse gases can have on driving long-term emissions reductions. It can also catalyse the emergence of new low-carbon technologies: when the price of carbon on the EU market reached about €30/ tonne, applications for new patents relating to low-carbon innovations increased by 30 per cent. Given that green economies have been shown to provide more jobs than brown ones, this is certainly something to be celebrated in light of the likely unemployment impacts of COVID-19.

A steadily rising carbon price can also give businesses the confidence to invest in existing low carbon solutions where they might have been holding off, due to high costs or lack of certainty about return on investment. And whilst we know that businesses will do what they can to pass carbon costs onto consumers, we also know that the British public is crying out for greater transparency with regards to the origins and footprint of the goods they buy, and that they are more willing than ever to tackle the climate crisis. If a carbon charge can mobilise the market to ensure that low carbon equates to low cost, then the price barriers and lack of transparency that are currently preventing many consumers from acting on their sympathy towards the climate cause can surely be overcome.

It’s time for Britain to take the lead

The climate-friendly rhetoric coming out of Europe, even in the midst of the Coronavirus crisis, should also be acknowledged. Whether we consider the 17 European Climate and Environmental ministers promoting the Green New Deal as a framework for Europe’s green recovery, the support that the Netherlands, France and Spain have provided for placing a ‘carbon wall’ around Europe, or Macron’s proposal to implement a Europe-wide Carbon Price Floor to prevent further declines in the EU ETS price, it appears that the bloc is heading in a greener direction. And whilst the UK may be hesitant to be seen to follow, there is no reason why we can’t move quickly to lead, an intention made clear in recent ministerial contributions to the Petersberg climate dialogue.

As incoming president of the now delayed COP26, the UK has a vital leadership role to play in driving the next phase of global ambition towards achieving the Paris climate agreement. But our legitimacy will extend only as far as our domestic ambition, and we have yet to put a substantial policy roadmap in place to achieve our net zero target. A carbon charge - accompanied by a border carbon adjustment mechanism - could provide this and a framework for the UK to push others to do better, being one of the few environmental policies that has the potential to unite global leadership across the political spectrum. It will also generate revenue to help kickstart a green and just recovery from COVID-19.

Of course, a carbon charge is not a silver bullet in the battle to address the climate crisis, and there are challenges to be overcome with regards to its implementation. The inherently regressive nature of a carbon tax springs to mind, so too do concerns about carbon leakage and the price point at which such a charge might be set. These issues - any many more besides - are currently being considered by the Zero Carbon Commission, who will be presenting their proposal for a fair and effective UK carbon pricing system in a white paper this summer. But as we look ahead at the challenges we face and consider the growing consensus behind the need to build back better, I feel a strong sense of conviction with regards to the Zero Carbon Campaign’s cause. A carbon charge may well be the catalyst that the UK needs to begin to address the dual crises that we - and the world - are currently facing.