£20-a-tonne carbon tax would increase UK consumer prices by less than 1%
A modest tax of £20 per tonne of carbon emissions across the UK economy would have 'little impact' on consumer prices, a new study from London School of Economics has found.
The research found that consumer costs would increase by up to 0.9%, assuming all charges were passed along supply chains.
However the researchers suggested that the actual costs could be even lower than that as consumers change their behaviour, businesses reduce emissions and tax revenues are recycled back into the economy.
The paper states: “In reality this impact would likely be smaller than these estimates suggest because our analysis has not allowed for any of the input substitution, innovation, production method change, or new investment behaviour that industries would exhibit to avoid the cost of carbon pricing.”
The researches claimed a carbon tax would provide incentives to increase energy efficiency and resource productivity.
"This could afford UK producers a competitive advantage in the long term, in a world where fossil fuel prices could rise and carbon reduction policies are likely to become more widespread and ambitious”, the paper said.
Times are a-changin
The researchers found that only a small number of industries – including the oil refinement, coal, iron and cement sectors – are likely to face production cost increases that put them under pressure from competition abroad. These industries account for 2% of UK GDP.
The researchers recognised that new policies must be created to protect these energy-intensive industries.
They wrote: “The correct policy response is not to resist this change but to identify vulnerable sectors and buffer labour market participants against its sharpest effects. Countries and firms that resist enduring change and innovation may not be acting in their long-term interests.”
Elon Musk went on record in December saying the widespread introduction of a carbon price could halve the time it takes the world to transition to clean energy.