Rishi Sunak’s Push for Green Levy on Petrol Was Blocked by UK Cabinet

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(Bloomberg) -- Conservative leadership contender Rishi Sunak privately lobbied to impose a green levy on petrol and diesel when he was Chancellor of the Exchequer, a plan critics said would have led to higher prices at UK pumps.

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In Cabinet-level discussions a year ago -- before prices began an inexorable rise -- Sunak proposed a Fossil Fuels Emissions Trading Scheme to put a price on pollution from road transportation, as well as shipping, building heating and diesel trains, which together make up more than 40% of UK carbon emissions.

According to three people familiar with the matter, the proposal was drawn up by the Treasury and submitted for to Boris Johnson’s office. It was rejected by the prime minister after opposition from other Cabinet ministers.

A spokesperson for Sunak said the proposal was part of the government’s work to make the country greener, and was ultimately not adopted.

Sunak’s argument was that making fuel importers and refiners responsible for the carbon emissions produced by people using their products would raise money for the Treasury and help pay for the plan to reduce greenhouse gas emissions to “net zero” by 2050. That Conservative manifesto commitment was championed by Johnson at the United Nations climate talks he hosted last fall.

The goal presents a challenge for the Treasury. One way to cut emissions, for example, is to promote a shift to electric cars -- a move that leaves a hole in the public finances due to the loss of petrol duty.

Leadership Aspirations

But the insight into Sunak’s thinking will still raise the pressure on him as he seeks to persuade the ruling Conservative Party to make him the next prime minister. His resignation as chancellor last week set in motion events that ultimately toppled Johnson, and Sunak is the among the frontrunners to replace him.

A major obstacle in his bid for the top job in British politics is that many Tories are calling for tax cuts to ease a cost-of-living crisis. Sunak, though, is trying to position himself as the candidate with a “responsible” plan for the economy, and has warned against “fairytale” pledges for unfunded tax cuts.

Tory Frontrunner Sunak Says UK Economy Faces ‘Challenging’ Time

Though economic conditions were different and Sunak has since cut duty on petrol, his proposal plays into the hands of his rivals in the Tory leadership race, which is taking place against a backdrop of record petrol prices.

Sunak’s plan could have ended up seeing road users pay hundreds of pounds a year more for their petrol, a person familiar with the plan said.

Cabinet Objections

The proposal was opposed by other Cabinet members, including Business Secretary Kwasi Kwarteng, who raised concerns that the cost of the levy on petrol companies would be passed onto people paying at the pumps.

It was ultimately rejected by Johnson, who instructed officials that he did not want to increase costs for consumers.

Under Sunak’s plan, the government would have developed a formula to calculate the emissions created from the combustion of fuel sold. The then-chancellor’s request was for the government to set an annual cap on such emissions, and then force firms to purchase an allowance to cover it.

The cap would also be reduced each year, to encourage a move away from petrol toward green energy. Ultimately, the Fossil Fuel Emissions Trading Scheme would have been merged with the existing program that covers emissions from industrial users including power plants and factories.

The Treasury argued that it was fair to target transportation because of the “polluter pays principle” that high-carbon emitters should be taxed more.

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