'Modest' carbon tax would have 'little impact' on consumers
The report claims that the ‘modest’ tax would only increase consumer prices by 0.9 per cent if all costs were spread across the supply chains thoroughly, stating that carbon policies would “provide incentives to increase energy efficiency and resource productivity,” while also finding that only a small number of industries would face production cost increases as a result of the tax.
The research, carried out by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science, also argues that input substitution, innovation, production method change and new investment and consumer behaviour would all lower the true cost further still.
The paper, authored by David Grover, Ganga Shreedhar and Dimitri Zenghelis, argues that changes to carbon policy should be embraced and not resisted, while also emphasising that gradual change would minimise the impact of any new pricing regimes.
“The correct policy response is not to resist this change but to identify vulnerable sectors and buffer labour market participants against its sharpest effects. Countries and firms that resist enduring change and innovation may not be acting in their long-term interests,” the paper explains.
“The more progressively phased the carbon pricing regime is, the lower the impact is likely to be as firms have time to adjust by investing in new equipment, re-tooling and re-skilling workers and changing supply lines. However, an early strong signal would still be necessary to convince investors of the need to develop low carbon energy efficient technologies.”
