Call for carbon taxes to offset Covid-19 costs

The Treasury should make more use of carbon taxes and consider other changes in tax policy in order to support efforts to reduce greenhouse gas emissions and bolster public finances, according to the Committee on Climate Change (CCC)

The CCC is an independent, statutory body which advises the government on emissions targets and the progress made in reducing greenhouse gas emissions and preparing for and adapting to the impacts of climate change.

In its annual report to Parliament, the committee stated: ‘Greater use of carbon taxes can support the public finances and strengthen incentives to reduce emissions. They are particularly attractive when global oil prices, and therefore consumers' energy costs, are low, as they are now.’

The report calls for changes in tax policy as a way of encouraging the transition to net-zero emissions, arguing the response to the pandemic provides an opportunity to strengthen incentives to reduce emissions when considering fiscal changes.

It states: ‘Many sectors of the UK economy do not currently bear the full costs of emitting greenhouse gases.

‘Revenue could be raised by setting or raising carbon prices for these sectors, and low global oil prices provide an opportunity to offset changes in relative prices without hurting consumers.

‘The UK’s future carbon pricing mechanism should be designed to ensure that an appropriate price for carbon is maintained even in times of external shocks, for example through a well-designed floor price.’

The committee points out that low global oil prices and improved energy efficiency provide an opportunity to offset changes in relative prices without raising consumer bills.

The report also highlights that company car tax reforms, alongside purchase grants and preferential tax treatment, are providing a strong consumer incentive to purchase low-carbon vehicles. The committee says more could be done with vehicle excise duty to strengthen incentives for all buyers and to discourage the most polluting vehicle purchases.

The CCC also wants the government to look at tax changes can be used with regard to new building projects, for example by offering tax reductions such as stamp duty differentials for options that favour low-carbon heating over fossil fuels and funding for capital grants (including for hybrid heat pumps) at a much larger scale than existing plans.

The report stated: ‘Differential rates of stamp duty and/or council tax could also be used to further incentivise take-up of efficiency measures, and potentially reduce the required grant funding of heat pumps.’

Lord Deben, CCC chairman, said: ‘The UK is facing its biggest economic shock for a generation. Meanwhile, the global crisis of climate change is accelerating.

‘We have a once-in-a-lifetime opportunity to address these urgent challenges together; it’s there for the taking.

‘The steps that the UK takes to rebuild from the Covid-19 pandemic can accelerate the transition to a successful and low-carbon economy and improve our climate resilience. Choices that lock in emissions or climate risks are unacceptable.’

Reducing UK emissions: 2020 Progress Report to Parliament

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