A carbon tax is better than green subsidies.

The cheapest cuts happen first. A carbon tax puts one price on each tonne of carbon dioxide and leaves households and firms to find the cheapest ways to cut their own emissions. Subsidies, by contrast, pay for particular technologies chosen by government, and they risk paying for cuts that would have happened anyway. This is why, in 2019, a statement signed by 27 Nobel laureates in economics described a carbon tax as "the most cost-effective lever" for cutting emissions at the scale and speed required. (Climate Leadership Council, 2019)

It raises money instead of spending it. Subsidies have to be paid for, either through taxes or through energy bills; in 2026, the costs of both Contracts for Difference and the Capacity Market rose, and both fall on electricity bills. A carbon tax raises revenue instead, which can be returned to households as a flat payment or used to cut other taxes. Canada did this with its consumer carbon price, and its government stated that 8 in 10 households received more back in rebates than they paid. (Nesta, 2026; Government of Canada, 2025a)

One price across the whole economy. At present the UK prices carbon unevenly. The UK Emissions Trading Scheme (UK ETS) covers around a quarter of territorial emissions, whilst the cost of supporting low-carbon power is added to electricity bills and not to gas. As a result, in April 2026 a unit of electricity cost about 4.3 times as much as a unit of gas, which makes heat pumps look expensive next to gas boilers. A single carbon price across the economy would remove that distortion and let each choice reflect its true climate cost. (ICAP, 2026; Nesta, 2026)

It works, and it can be protected from cheap imports. Sweden introduced a carbon tax in 1991 and raised it from about €23 to €122 per tonne by 2023. Between 1990 and 2021, its real gross domestic product (GDP) grew by 92% whilst its domestic greenhouse gas emissions fell by 33%. Concerns that firms will simply move abroad can be met at the border: from 1 January 2027, the UK will charge a carbon price on imports of aluminium, cement, fertiliser, hydrogen, iron, and steel. (Government of Sweden, 2023; HMRC, 2026)

Subsidies made clean power cheap. Targeted support created the markets that drove down the cost of clean technology. In the UK's first auction of Contracts for Difference (CfDs) in 2015, offshore wind won contracts at £114 to £120 per megawatt hour (MWh); by 2019 the price had fallen to between £39.65 and £41.61 (both in 2012 prices). Worldwide, electricity from new solar farms fell from about 42 US cents per kilowatt hour in 2010 to about 4 cents in 2024. A carbon price at a level voters would accept could not have achieved this alone. (DECC, 2015; BEIS, 2019; IRENA, 2025)

Carbon taxes are hard to sustain. A carbon tax is highly visible: people notice it every time they fill up the car or heat their home. Canada removed its consumer carbon price on 1 April 2025, keeping a price only for large industrial emitters. Subsidies, by comparison, reward people for switching to cleaner options, and so they are less likely to be reversed when governments change. Climate policy needs to last for decades if it is to guide long-term investment in homes, vehicles, and industry. (Government of Canada, 2025b)

Innovation needs more than a price. New technologies get cheaper as more of them are built, and the benefits of that learning spread to everyone, not just the first buyers. A widely cited study in the American Economic Review concluded that the best policy combines carbon taxes with research subsidies, and that relying on carbon taxes alone would cause excessive distortions. New networks, such as charging points and heat networks, also need a degree of public co-ordination that a price cannot provide. (Acemoglu et al, 2012)

Fairer for lower-income households. A carbon tax raises the price of essentials such as heating and transport. In the year to March 2023, the poorest fifth of UK households spent 27% of their total spending on housing, fuel, and power, the largest share of any group. Subsidies can be aimed at those who need help most, for example by paying for insulation or heat pumps in low-income homes. As a result, the cost of switching does not fall on the people least able to bear it. (ONS, 2024)