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Sun, 27 September 2020

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Let’s ‘build back greener’ with a new carbon tax

Let’s ‘build back greener’ with a new carbon tax

A Carbon Tax gives an accurate signal to the economy that businesses and consumers can follow, writes Jerome Mayhew. | PA Images

4 min read

A new carbon tax with border tariffs would raise valuable revenue from carbon purchases, boost low carbon businesses and accelerate the march to net-zero by 2050.

Throughout the Covid-19 crisis you could almost hear a tearing noise from rule books.

The extraordinary sacrifices we have all made to protect lives and livelihoods in the wake of the virus have accelerated profound structural changes in our economy.

The vitality of the high street has become more uncertain, domestic tourism has been rewarded at the expense of international travel, while the future of an office-based economy has been called into question.

There are already many winners and losers of these accelerated trends. There will be even more resulting from the dramatic changes required to pivot towards our zero carbon future, which have become increasingly urgent. 

Almost everyone agrees that the economic response to Covid-19 has been swift and dynamic, but it has knocked our public finances for six.

The intervention has worked, with thousands of businesses and millions of jobs being saved from the immediate shock of the lockdown, but the cost has been immense. 

We all know that the spending cannot go on for ever, and the Chancellor has already made clear that we need to get our public finances back into shape.  That sounds like code for tax rises to me.

I’m a Conservative who believes in low taxation, with vibrant entrepreneurial growth funding effective public services, so where should we turn to repair the public finances?

As we look to kickstart our economy we have an opportunity to refocus economic growth in areas that actively support our move towards a low carbon economy.

In 1712, the Government imposed a tax on printed wallpaper. It expected to raise money but what actually happened was a fashion for hanging plain wallpaper that was then painted in situ

The point of this factoid is that tax changes people’s behaviour.  All taxes, eventually, are paid by us consumers and we very sensibly do our best to avoid as many of them as we can.

We should learn from the wallpaper hangers of the 18th Century.

Buying a product that has released carbon in its manufacture costs us all a lot of money through climate change, yet this cost is not currently reflected in the exchange.

If you believe in free markets then we need to fix this for true exchange to thrive. 

We can do it by adding a Carbon Tax to reflect the missing cost. There is nothing new in this. In fact, some industry sectors already include a base carbon price, but it is very unevenly applied, priced too low to reflect true costs and, in other sectors, non-existent.

As we look to kickstart our economy we have an opportunity to refocus economic growth in areas that actively support our move towards a low carbon economy.

When it comes to carbon, we know the direction of the world economy over the next 20 to 30 years. Not to maximise our growth potential in this known direction would be a mistake.  

A Carbon Tax gives an accurate signal to the economy that businesses and consumers can follow, including wallpaper manufacturers.  It’s a win-win: raise valuable revenue from carbon purchases, boost low carbon businesses and accelerate the march to net-zero by 2050 from those who, sensibly, avoid the tax.

It sounds so simple, but there’s a big catch.  

A domestic carbon tax could simply push carbon-heavy manufacturing abroad, making no difference to the environment and losing jobs here: good news for China, bad news for us.

But there is an answer. 

Apply a tariff to all imported carbon-intensive goods equivalent to the domestic carbon tax and we provide a fair competitive base between domestic and international competition, without unfairly favouring one over the other. 

Not only would the benefit be felt in the UK, we would also be giving an incentive for foreign firms to reduce their carbon use if seeking to sell into the UK. 

The same approach, but in reverse, would be applied to UK exports: payment equivalent to the cost of the Carbon Tax so that our exporters can compete fairly in “dirty” foreign markets.

How could this be achieved?

We will need to apply a transparent process for assessing the carbon equivalence of other countries to avoid accusations of protectionism, with companies able to apply for rebates based on evidence of lower emissions in their manufacturing processes. 

Whilst the EU has expressed increasing interest in the development of such a border scheme, Brexit means that the UK will not be held back by the time needed to develop a multinational approach.

A new carbon tax with border tariffs is just one of a series of recommendations set out last week in the One Nation Caucus’ new report on how the Prime Minister can achieve his stated ambition to “build back greener”.

Let’s lead the way on carbon taxation and let the EU and the rest of the world catch up.  New wallpaper anyone?

 

Jerome Mayhew is the Conservative MP for Broadland and a member of the environmental audit select committee.

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