Carbon border tax can unite goals to level up and reach Net Zero, says new report from the CPS

• A new report by the Centre for Policy Studies says the Government can level up and decarbonise the economy simultaneously by introducing a carbon border tax, alongside a selection of other policies
• A carbon border tax on energy intensive imports would see importers from outside of the UK put on a level playing field with British businesses
• This would help support the regions most at risk of being left behind by the push for Net Zero, many of the same areas that the government wants to ‘level up’
• Ahead of the publication of the Government's Levelling Up White Paper, Levelling Up and Zeroing In recommends a range of other policies to ensure that the Net Zero agenda works to help the areas most in need of levelling up
• These include: boosting R&D through spending and regulatory changes, implementing ‘full expensing’ and a ‘green super deduction’ so businesses can invest in greener tech, extending carbon pricing to more of the economy, reforming skills provision, and reinvesting the revenues from carbon policies into helping local areas transition to Net Zero, including via a new breed of technical universities

Levelling Up and Net Zero are two of the Government’s top priorities. Yet as a new report by the Centre for Policy Studies points out, the North and Midlands are home to the areas with highest emissions per person in the UK. Where London and the South East have service-heavy economies that are far less carbon-intensive, there are localities around the other regions of the UK that require a great deal of attention to decarbonise. The steel industry, for example, is heavily concentrated in a small number of areas, such as Scunthorpe and Port Talbot. Around 15% of all UK industrial emissions come from just those two places. In another example, 90% of the manufacturing capacity of the energy-intensive ceramics sector is represented in Stoke-on-Trent, employing 7,000 people. 

In order for decarbonisation to succeed, and to retain public support, we must ensure that the places that will be most impacted by the carbon transition can also benefit from new green jobs and investment. 

In the report, backed by Alexander Stafford MP, the CPS proposes a range of policies to help these two agendas work together, including a carbon border tax, to ensure that Net Zero does not leave those industries at the heart of many communities vulnerable to foreign competitors who are not subject to the same environmental standards. 

The CPS argues that the UK is already positioned to be a world leader in clean technologies and industries. However, the Government must act quickly to ensure the right policies are in place to capitalise on this and seize the opportunities of the future Net Zero economy.

To achieve this, the report recommends six policies for immediate adoption:

1. Make full expensing permanent and introduce a ‘green super deduction’ for clean business investment. Many British businesses will need to spend significant sums to decarbonise, such as on new equipment, machinery and plants. They should be able to fully offset these investments against their tax bills.
2. Extend carbon pricing to more of the economy. The UK Emissions Trading System should be broadened out to include more of the economy – for instance, bringing agriculture, transport, and heating into its scope.
3. Reform skills provision, beyond the young. Broadening the scope of the Apprenticeship Levy to make it much more flexible for employers to use, would accelerate the stated goal to improve and expand lifelong learning, while allowing workers to transition into clean jobs.
4. Support investment into clean research and development. Funding for innovation needs to be maintained as well as examining how to better regulate emergent industries which could help deliver new technologies to cut greenhouse gases from sectors such as agriculture or in the energy supply. 
5. Adopt a carbon border tax. The carbon border tax, or ‘carbon border adjustment mechanism’ would provide a level of insurance against ‘carbon leakage’ and give British industries the reassurance they need that taking steps to decarbonise will not mean they are unfairly undercut by cheaper yet dirtier imports.
6. Fund a bold new programme of technical universities. Revenues from the carbon border tax and wider carbon pricing should be used to create technical universities in areas in need of levelling up, to help equip workers for precisely the sorts of green jobs which will form the future green economy. Carbon revenues could also be channelled into economic development funds for local authorities.

Alexander Stafford MP, Member of the Business, Energy and Industrial Strategy Committee said:
“There’s no path to net zero that doesn’t run through this country’s industrial heartlands and
that doesn’t involve reindustrialisation by new means. Business and enterprise will drive
innovation and technological solutions – let’s unleash that potential and build the future
with the pride of our past.”

Sam Hall, Director of the Conservative Environment Network said:

"Net zero and levelling up are two sides of the same coin. Levelling up is about boosting economic opportunities in every part of the UK, while net zero is one of the biggest economic opportunities of this century, with the UK's industrial heartlands likely to benefit disproportionately from a boom in green jobs. The UK already has a head start in several green industries and has significant potential to be global leaders in others. The CPS has put forward a pragmatic set of proposals to realise the substantial economic opportunities from net zero for the regions of the UK."

Eamonn Ives, Head of Energy and Environment at the CPS said:
“Having just hosted COP26, it is now time to get on with the next phase of decarbonising Britain’s economy. But at the same time, progress must be made on the Government's levelling up agenda. By tackling emissions from challenging sectors such as steel production or other industrial activities in the right way, these two goals are not just compatible but complementary. The package of policies mapped out in our report will help put Britain at the forefront of the global Net Zero realignment while providing a boost to the UK regions that need it most.”

Notes to Editors

• ‘Levelling Up and Zeroing In’ can be downloaded here. 

• This report was supported by Stonehaven, although as with all our reports the CPS is wholly responsible for the content and views expressed.

• Alexander Stafford MP is a member of the Business, Energy, and Industrial Strategy Select Committee