Extending carbon pricing to road transport while fuel duty remains in place could spark a consumer revolt, a new report by the Energy Systems Catapult (ESC) has warned.
The study, published by the ESC and the London School of Economics’ Grantham Research Institute, examines the implications of the government’s commitment to extend the UK Emissions Trading System (ETS).
While this extension would significantly expand the application of the polluter pays principle, it could hit low-income households particularly hard because they are less able to respond to higher prices by investing in low-carbon alternatives, warns the report.
It says: “Without compensatory policies, expansion may risk entrenching inequality given that energy costs constitute a higher share of expenditure for lower-income households who are less able to change their consumption behaviour in response to higher prices.”
The report warns of the risks of a potential expansion of the UK’s carbon price regime to road transport running in tandem with fuel duty.
“The simultaneous running of the two schemes would unnecessarily complicate the policy landscape. It could also result in double pricing and increase transport fuel costs further, potentially leading to consumer opposition.”
While expansion of the ETS to road transport offers an opportunity to reform fuel duty, this would be most effective as part of a package of policies that encourage a shift from private internal combustion engine vehicles, including the rapid deployment of charging infrastructure for electric vehicles and incentives to use public transport.
Other policies, like the proposed 2030 ban on sales of new petrol and diesel vehicles and clean air zones, may have a “stronger potential” to decarbonise road transport and offer a better option than bringing road transport into the ETS in the near term.
On home heating, the report says heat pumps are not yet an “economically viable” proposition for consumers, in terms of either upfront or running costs.
While expanding the UK ETS to cover heat and buildings may help to level the playing field between electricity and natural gas prices, it would be insufficient to encourage uptake of low-carbon technologies on the scale required, the report claims.
It says that in both sectors, complementary measures would be required to mitigate the hit to some consumers’ pockets that a potential expansion of the UK ETS would create.
Josh Burke, senior policy fellow at the Grantham institute and one of the report’s authors, said: “The policy must be underpinned by equity and fairness as without compensatory policies, expansion may risk entrenching inequality given that energy costs constitute a higher share of expenditure for lower-income households. This could be achieved through the creation of a ringfenced fund with the carbon pricing revenues used to reduce the impact of higher energy and fuel cost.”