Abolish carbon taxes and CBAM: calculation note

Central fiscal result

+£3.0bn - Net fiscal impact in 2028-29

Low case: +£1.5bn. High case: +£6.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Model repeal of selected carbon pricing by 2028-29.
• Central cost is £3bn lost receipts.
• Baseline includes ETS and environmental receipts context.
• ZEV mandate and household VAT are separate policies.

Affected population

• Affected population is firms and households paying carbon-related costs.
• Direct beneficiaries include energy-intensive industries and fossil-fuel consumers.
• Indirect exposure includes clean-tech investors and future taxpayers.
• CBAM effects depend on trade coverage.

Gross impact

• Central lost receipts: £3.2bn.
• Lower business costs may raise other receipts by £0.2bn.
• High case assumes broader repeal of environmental receipts.
• Future emissions costs are not fully monetised.

Fiscal build-up, central case

• Lost carbon-pricing receipts: +£3.2bn
• Higher other tax receipts: -£0.2bn
• Administration savings: £0.0bn
• Future compliance costs: £0.0bn

Central net impact: +£3.0bn in 2028-29.

Behaviour and pass-through

• Low case assumes narrow repeal and some pass-through.
• Central case assumes broad but incomplete carbon-pricing repeal.
• High case assumes wider environmental receipts are removed.
• Emissions rise unless alternative policy replaces price signals.
• Clean investment may fall more than direct fiscal cost implies.

Phasing

• 2026-27: +£0.6bn. Preparation or partial implementation.
• 2027-28: +£2.4bn. Main ramp-up year.
• 2028-29: +£3.0bn. Target-year central estimate.
• 2029-30: +£3.0bn. Continuation at steady-state assumptions.

Main source groups

• Office for Budget Responsibility, "Economic and fiscal outlook: October 2024" (2024): The OBR scores fuel-duty, EPL and environmental-receipts measures and discusses oil-and-gas uncertainty; anchors energy and motoring estimates.
• HM Revenue and Customs, "Direct effects of illustrative tax changes bulletin" (2025): HMRC provides direct-effect estimates for illustrative changes to SDLT, VAT, fuel duties and other taxes; anchors tax costs before behavioural and macro adjustments.
• Office for Budget Responsibility, "Economic and fiscal outlook: March 2026" (2026): The OBR forecast sets the macro, borrowing and receipts baseline used for broad fiscal context; prevents treating tax cuts or spending changes as self-financing.
• Andersson, "Carbon Taxes and CO2 Emissions: Sweden as a Case Study" (American Economic Journal: Economic Policy, 2019): Sweden's carbon tax reduced emissions while measured GDP effects were limited in that setting; relevant to scrapping carbon taxes and fuel duties.
• Goulder and Parry, "Instrument Choice in Environmental Policy" (Review of Environmental Economics and Policy, 2008): Instrument choice matters: taxes, permits and standards differ in efficiency and distributional effects; relevant to carbon pricing, CBAM and ZEV mandate choices.
• Dechezlepretre and Sato, "The Impacts of Environmental Regulations on Competitiveness" (Review of Environmental Economics and Policy, 2017): Environmental regulation can impose costs but competitiveness effects are often smaller than claimed; relevant to deregulation claims around net zero and ESG.
• Conservative Party, "Our Plan for Britain" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.