Every year before the end of June, the Climate Change Committee (CCC) reports to Parliament on its assessment of the Government’s performance and progress towards achieving Net Zero by 2050.
This year’s report asks HM Treasury to consider a Net Zero Tax Review to establish how the tax system can best support the transition to Net Zero.
This would involve correcting distortions that often penalise low-carbon technologies and ensuring that the significant consumer savings from using many low-carbon technologies are also widely enjoyed. This is scheduled for 2023, so a consultation is anticipated next year.
The report itself is lengthy – 619 pages in total – which makes it more difficult to pinpoint exactly where action is currently being focussed and where more emphasis is needed. Its main concern is the risk of failing to achieve the Net Zero goal and identifying the areas where risk is greatest, suggesting possible actions the government could take.
The CCC reiterates its recommendation from its COP26 report that a Net Zero Tax Review should also address any preferential tax treatments that could be considered a fossil fuel subsidy.
The report also flags some key considerations when looking to plug the significant hole in public finances that could arise from the transition to electric vehicles (EVs). The CCC assesses that some form of road-pricing will be necessary to avoid this being subsidised through general taxation. Without developing options at an early stage, the report highlights the risk that:
- drivers could assume that EV driving will always be tax-free; and
- there may be a perception that EVs were tax-free when richer consumers could afford them, but will be taxed once they are available to the mass market.
Meanwhile, work is already underway to consider a Carbon Border Adjustment Mechanism to help prevent carbon leakage. The report also recommends consulting on mandatory minimum climate related standards on some imported manufactured goods and energy.
Read more from the Tax Faculty on the development of tax policy to support Net Zero:
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