There is a downside to carbon pricing. It temporarily exacerbates fuel poverty.
Many people in the UK struggle to pay their energy or transport bills and a carbon price will inevitably have the initial effect of increasing prices for these. Long term, prices will fall because renewable energy is, overall, much cheaper than non-renewable energy. But the impact of that is delayed because of the initial cost of installation. Costs will also be reduced elsewhere in the economy e.g. through smaller taxation now that carbon pricing is paying for flood defences. Nevertheless, in the short term, fuel prices would go up.
Neglecting this issue makes carbon pricing politically impossible to introduce. A good example is the rise of the Gillet Jaune protests on the streets of France in 2019 as the result of “Green Taxes” introduced on fuel with no attempt made to counter the financial impact on ordinary citizens. The French government eventually backed down and removed the taxes.
Avoiding this problem is not hard. Some of the revenue from carbon pricing can be returned to bill-payers so that ordinary households are not financially penalized overall. This is revenue recycling.
Revenue recycling is a central pillar of the Citizens’ Climate Lobby. We campaign for it because we believe there can be no transition to a low carbon economy without taking account of the real-world financial impacts of transition on ordinary citizens.