Yesterday, the new British Prime Minister cut the climate levy from your electricity bill.
Andy Burnham has been in office for less than a week. His first major fiscal act was to reduce the tax burden on household energy bills. A Labour government - the party that created most of these taxes in the first place - has effectively admitted that the energy tax burden was too high.
This is worth examining closely, because it tells you something important about the stability of every climate policy built on taxation.
The Tax Stack
Before we get to what Burnham did, you need to understand what was on your electricity bill.
UK electricity bills include a series of environmental and social levies: the Climate Change Levy, the Renewables Obligation, the Feed-in Tariff scheme, the Contracts for Difference scheme, and the Warm Home Discount, among others. Together, these levies add roughly 20 to 25 percent to the average household electricity bill, depending on consumption and region.
The Climate Change Levy was introduced in 2001 as a tax on business energy use. It was expanded to domestic electricity in 2013. The official justification was to reduce carbon emissions by making energy more expensive, thereby discouraging consumption and encouraging efficiency and renewable investment.
In theory, the logic is straightforward. Higher prices reduce demand. Lower demand reduces emissions. The revenue funds green investment. The mechanism is standard market-based environmental policy.
In practice, the levy is a regressive tax that falls heaviest on the people who can least afford to change their behavior. A wealthy household can install solar panels, buy an electric car, and insulate their home. A low-income household in a rented flat cannot do any of those things. They just pay the higher bill.
What Burnham Did
Burnham scrapped the Climate Change Levy from domestic electricity bills. He replaced the revenue with general taxation, effectively cutting the levy component of household bills. The cut is real and will show up immediately.
The official explanation: the government wanted to reduce the cost of living pressure on households. The logic: taking a tax off electricity bills is one of the fastest ways to put money back in people’s pockets without adding to inflation.
The political significance: the first act of a new Labour government was to cut a climate tax. This is the same party that created the Climate Change Levy, expanded it, and defended it for over two decades. Now they have effectively admitted that the burden was too high.
What It Reveals
The energy tax story has two levels, and this is where it connects to Max’s analysis in Part I and Part II of The Grievance Machine.
First, the carbon tax that already exists. In The Carbon Tax That Already Exists, I showed that UK fuel duty already prices carbon at over 229 pounds per tonne - well above the Social Cost of Carbon estimates that advocates use to justify additional carbon taxes. The Climate Change Levy was an additional tax on top of an existing implicit carbon price that was already more than high enough. The fact that it took a new government to even notice this is telling.
Second, the stability question. Every climate policy in the UK was built on the assumption that the tax burden would remain in place for decades. The entire investment case for renewable energy, the entire justification for grid upgrades, the entire logic of carbon pricing depended on a stable, predictable policy environment. But the first act of a new government was to dismantle part of it.
What happens when the next government comes in and cuts another levy? What happens when public opinion shifts against energy taxes in five years, or ten? The whole edifice is built on the assumption that voters will accept higher energy costs indefinitely. Burnham just showed that assumption is false.
The Deeper Pattern
This is not unique to the UK. Carbon taxes have been rolled back or abandoned in France (the Gilets Jaunes), Australia (repealed after two years), Canada (Ontario’s cap-and-trade system scrapped), and now the UK. In every case, the mechanism was the same: a tax was imposed, voters felt the cost, and political pressure forced a reversal.
The academic literature on carbon taxes acknowledges this. The political economy problem is not that carbon taxes are ineffective - they can reduce emissions. The problem is that they are politically unsustainable. When the costs are visible and concentrated on household energy bills, voters notice. When voters notice, politicians respond. The taxes get cut or repealed.
The response from advocates is always the same: we did not go far enough. Never ask whether the mechanism works. Never consider the political sustainability. Just demand more power. The machine, as always, turns failure into a demand for more.
The Question
Burnham’s decision is not a betrayal of climate policy. It is a recognition of reality. Energy taxes are unpopular because they hurt. And when they hurt enough, governments cut them.
The question for climate policy advocates: if you cannot sustain a modest levy on domestic electricity bills - one of the mildest interventions in the entire climate policy toolkit - what makes you think you can sustain the much larger interventions that would actually be required to meet Net Zero targets?
The answer, as always, is that the question does not get asked. The machine keeps running. The targets keep getting set. And one election at a time, the taxes that were supposed to be permanent get cut.
The sensible thing is that when someone tells you about a permanent carbon price, ask how long the last one lasted. The answer tells you everything.