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Fuel tax hikes to reduce emissions will significantly increase regional inequality in UK

Context:

  • An obvious way to reduce the emission of greenhouse gasses is to increase fuel taxes as a way of discouraging diesel and petrol consumption.

Findings:

  • Change in spatial flows of internal trade as a result of raising the cost of fuel have measurable energy justice implications: peripheral regions of the economy, in rural and coastal areas and many city outskirts are most vulnerable, as are petrochemical, agricultural and connected sectors.
  • Given that the UK is already one of the most regionally unequal countries in Europe, the effect of further exacerbating regional inequality is a significant and important finding that has major implications for energy policy, not only for the UK but potentially also for developed countries around the world.

Policy implications:

  • Policy needs to go beyond identifying places and sectors most affected: it is the connections between them that matter most.
  • The "push" of a carefully designed fiscal policy (one that is sensitive to spatial effects) needs to be combined with the "pull" of targeted low-carbon intermediate connections.
  • This is needed not only to ameliorate the spatial injustice of fuel tax hikes, but also to help make carbon transition more politically acceptable.

Related publication:

Journal article: The spatial economics of energy justice: modelling the trade impacts of increased transport costs in a low carbon transition and the implications for UK regional inequality