UK government missing out on nearly £2bn a year by not taxing shipping pollution

Cash-strapped Britain could benefit from an additional £1.8 billion a year if it were to tax shipping emissions, a new Transport & Environment (T&E) analysis shows. Pricing the UK’s shipping emissions is a win for the climate and a win for the exchequer, says T&E. 

UK shipping activity was responsible for 22 million tonnes of CO₂ in 2021 – equivalent to a third of all the UK’s cars. If the UK government were to include all the sector’s emissions in its cap and trade scheme – the UK ETS – these emissions could generate nearly £2 billion annually. However, T&E’s analysis shows that with the government’s current plans, less than 10% of UK shipping emissions would be covered, generating just £170 million a year.

The government is currently considering an extension of its carbon market into shipping but only to ships that are above 5000 gross tonnage (GT) and making domestic voyages. This means a cargo or passenger ship sailing, for example, from Felixstowe to Calais or from New York to Liverpool, would not be made to pay anything. This is despite these international voyages making up for about 90% of the UK’s shipping emissions. 

Jon Hood, sustainable shipping manager at T&E UK, said: “The government is currently forfeiting nearly two billion pounds a year by not pricing shipping pollution. With public debt and borrowing costs at an all time high, this would raise significant funds with the added bonus of helping the UK on its path towards net zero. It’s a win-win.” 

UK shipping emissions need to halve by 2030 if the UK is to meet its climate targets. International shipping emissions will be included in the UK government’s Carbon Budgets from 2033 – a cap on the country’s total carbon emissions – meaning the government must find ways to reduce them, says T&E. 

Including international shipping emissions in the ETS has also been recommended by the UK Climate Change Committee, while the government’s recently-published independent review of Net Zero recommends expanding the ETS into new sectors.