IFS: Government's scrapping of Carbon Price Support a welcome – if modest – improvement to taxation of carbon emissions

The government yesterday announced that Carbon Price Support (CPS) will be abolished from April 2028. CPS is a tax on the carbon emissions of electricity generators in Great Britain first introduced in 2013. CPS distorts emission reduction choices without providing any benefits in terms of directly reducing carbon emissions. This is because electricity generators are included in the Emissions Trading Scheme, which fixes total emissions from the sectors it covers. The removal of CPS is a welcome (if modest) improvement to the UK's often confused approach to carbon taxation.

Bobbie Upton, a Research Economist at the IFS, said: 

‘This is a welcome, if small, step towards more uniform taxation of carbon emissions. Taxing emissions from one activity, in this case electricity production, more than other emitting activities makes reaching net zero more costly than it needs to be. The government could go further in making net zero less costly to achieve by removing more of the (many) distortions that arise from taxing different sources of emissions at different rates.'

ENDS

Notes to Editor

Response to scrapping of Carbon Price Support is an IFS briefing by Stuart Adam, Isaac Delestre, Peter Levell and Bobbie Upton.

The briefing is available to read here