THE UK GOVERNMENT is spending £1 billion pounds less on cutting domestic emissions than it is raising through carbon taxes, research published by the New Economics Foundation (NEF) finds.

The UK emissions trading scheme, which charges certain businesses for emitting greenhouse gases, is expected to raise £6.5 billion this year, but the government has only allocated £5.5 billion to cutting carbon emissions.

The UK emissions trading scheme charges businesses in highly polluting sectors per tonne of carbon they emit. Over the past two years the price of a tonne of carbon in the scheme has trebled from around £28 to around £85. As a result, the amount that the government expects to raise this year has more than quadrupled, from £1.2 billion in March 2021 to £6.1 billion in November 2022, according to the Office for Budget Responsibility (OBR). The analysis finds that the revenue will be even higher, at £6.5 billion, and will remain at over £ 5billion every year until 2030.

The analysis highlights that when emissions trading schemes bring in additional revenues, the UK’s European neighbours are much better at reinvesting these into climate action. Germany, Portugal, France and Greece are all using between 90 and 100 per cent of equivalent EU emissions trading scheme revenues to cut harmful carbon emissions. In contrast, the UK has only reinvested 20 per cent of its additional trading scheme revenues into climate action this year, with this forecast to rise to just 69 per cent by 2024/​25. NEF research argues that there are many sources of money for climate action, including general taxation, government borrowing and the Bank of England. But the analysis shows that despite the government’s own Environment Act saying that taxes collected from polluters should be reinvested in compensating for environmental damage, the government is not taking full advantage of a vital resource.

At last month’s Cop27 climate summit, the international community agreed to create a ​loss and damage” fund to provide financial assistance to poor nations stricken by climate disaster. The analysis highlights the need for the UK to identify new and additional finance to commit to this fund, including revenues from the emissions trading scheme. NEF analysis argues that this would recognise the disproportionate impact which the UK has had in fuelling the climate crisis, compared to poorer countries who are bearing the brunt of its impacts.

NEF recommend that the government use revenues raised from the emissions trading scheme to:

  • Invest an additional £8.75 billion during this parliament to upgrade the nation’s draughty homes so the cost of keeping warm is reduced, plus an extra £3.6 billion to kick-start an emergency basic insulation programme this winter.
  • Set up a new stream of ​loss and damage’ finance to support low income countries to recover and rebuild in the aftermath of climate-induced disasters such as droughts and floods and heatwaves.

Dr Alex Chapman, senior researcher at the New Economics Foundation, said: We’re set to raise over £20 billion over the next four years from our most polluting businesses but we’re not putting it to good use. This government has the opportunity to reinvest this money to cut our dangerous carbon emissions and repair some of the damage caused by the climate crisis. If we put this towards insulating and upgrading the UK’s draughty homes, we could keep families warm and save the government money. And when countries like Pakistan, who have contributed the least to the climate crisis, are struck by flooding or other extreme weather, we should make sure they get the money they need.”

Danny Sriskandarajah, Oxfam GB Chief Executive said: While the climate crisis is affecting everyone around the world it is people living in poverty who are bearing the brunt. It is a gross injustice that the largest polluters are reaping huge profits while those who have done the least to cause it are left footing the bill. The polluter should – and could – be paying for this climate damage.

The revenues from the UK emissions trading scheme must be harnessed to support people in the UK reduce their energy bills and emissions and also to help low-income countries recover from the devastating impacts of an escalating climate crisis which is already destroying countless lives, homes and jobs. Following the historic outcome at Cop27 in establishing a loss and damage fund, the emissions trading scheme is an important revenue source that can help people tackle the climate crisis at home and abroad.”

* Read Making Polluters Pay: How the Emissions Trading Scheme should be harnessed to benefit people and climate here.

* Source: New Economics Foundation