Introduce GBP 120 carbon tax

Policy baseline

The Green manifesto proposes a high carbon tax. Analysts question whether such a large revenue claim is compatible with falling emissions.

• Targets fossil energy and embodied emissions.
• Consumer compensation is unspecified.
• Revenue falls if emissions fall.

Core trade-offs

The direct beneficiaries are climate mitigation and public revenue. The costs fall mainly on energy users, high-carbon firms and households. The main economic question is prices rise sharply without compensation.

• Climate mitigation and public revenue gain most directly.
• Costs fall mainly on energy users, high-carbon firms and households.
• Key risk: prices rise sharply without compensation.

Fiscal impact by 2028-29

-GBP 90.0bn to -GBP 10.0bn. Central estimate: -GBP 40.0bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: High-carbon sectors face job risk; low-carbon sectors gain if revenues are recycled well.
• Wages: Real incomes fall without compensation; green-sector wages may rise.
• Prices: Energy, transport and goods prices rise unless revenue is recycled.
• GDP / productivity: Likely negative short-run output effect; long-run welfare gains depend on emissions reduction.

Assessment

This is a real trade-off, not a free gain. Climate mitigation and public revenue benefit, while energy users, high-carbon firms and households bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Regressive prices: Energy and transport costs hit poorer households unless compensated.
• Carbon leakage: Emissions and production can shift abroad without border measures.
• Revenue erosion: A successful carbon tax shrinks its own tax base over time.

Safeguards

• Recycle revenue to households transparently.
• Use border measures for leakage risk.
• Publish distributional impacts before launch.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for introduce gbp 120 carbon tax Internal - PolicyLens, 2026
• Carbon Taxes and CO2 Emissions Academic article - Andersson, American Economic Journal: Economic Policy, 2019
• Green Party manifesto: a reaction Think tank analysis - Institute for Fiscal Studies, 2024
• Green Party manifesto summary Manifesto summary - Local Government Association, 2024
• The Macroeconomic Impact of Europe’s Carbon Taxes Academic working paper - Metcalf and Stock, NBER, 2020
• Climate Change: The Ultimate Challenge for Economics Academic article - Nordhaus, American Economic Review, 2019
• Direct effects of illustrative tax changes Tax statistics - HMRC, 2025
• The Seventh Carbon Budget Official advisory report - Climate Change Committee, 2025
• Manifesto for a Fairer, Greener Country Party policy source - Green Party of England and Wales, 2024

Other Green policies

• Raise the minimum wage to £15
• Index public-sector pay to inflation
• Add public-pay restoration premiums
• Raise low-paid public-sector wages
• Cap organisation pay ratios at 10:1
• Protect pay in transition schemes
• Create a single worker status
• Equal terms for outsourced workers