Use carbon tax revenues to cut green levies, urges Penrose

The government should introduce a carbon border tax on foreign goods and use some of the revenues raised to cut or abolish green levies on electricity bills, a leading Conservative backbench voice on energy issues has urged.

In an interview with Utility Week, John Penrose MP highlighted one of the key recommendations in a new report from the cross-party Commission for Carbon Competitiveness, which he chairs.

The report, published last week, recommends the introduction of a UK Carbon Border Adjustment Mechanism (CBAM).

The mechanism, which the report says should align where practical with the carbon border tax that the EU is introducing in 2026, would put UK manufacturers on a level playing field with competitors based in countries with less stringent policies on curbing emissions, it says.

The government launched a consultation on introducing a UK CBAM in March.

The imported goods would be subject to payments based on the level of UK’s Emissions Trading System (ETS).

The report recommends using the proceeds of a UK CBAM to abolish green levies on energy bills and fuel duty.

It adds: “Increased revenue that HM Treasury receives as a result of a CBAM should be used to significantly reduce as much as possible or even remove the cost of those green levies, including fuel duty, which are significantly contributing to the cost of living.”

Penrose said: “It (the CBAM) will make all British manufacturing competitive against imports from high polluting, high carbon jurisdictions. Best of all, it will take the money realised from this changing carbon taxation and will plough it back into reducing either fuel duty or the green levies on energy prices.”

He also said that the report’s recommendation offered a way of addressing the concerns of those who have called for the scrapping of environmental levies on electricity bills since the backlash against the London mayor’s Ultra Low Emission Zone at last week’s Uxbridge by-election.

Penrose added: “The amount it (CBAM) would yield depends heavily on the carbon price and that’s a moving target but it would certainly reduce them and or fuel duty, whichever one they chose to apply it to. Either way, it will be a welcome political bonus, which is both green and economically rational as well.”

Penrose also reiterated his call for the government to get on with the Review of Electricity Market Arrangements (REMA), which ministers have said will be consulted on for a second time this autumn.

He said: “If it’s early in the autumn and it shows a really big step forward in terms of narrowing what the options are and it’s basically a technocratic set of detailed questions on things which are clearly set out in principle, then it’ll still be a bit slower than I would have liked originally but we’ll be getting there.”

The Somerset MP, who helped to lead the campaign to introduce the energy price cap, said the publication by the government of a REMA white paper by mid-autumn or before Christmas would spur investment.