The Scottish Parliament agreed ambitious targets for reducing Scotland’s greenhouse gas (carbon) emissions in 2009. Setting a price on carbon – through taxes or trading schemes – is widely recognized to be essential to deliver the transition to a low carbon economy.

Currently, carbon pricing is achieved through the EU-wide Emissions Trading Scheme on energy intensive industry, along with UK-wide taxes related to energy or carbon emissions. However, these carbon taxes on domestic electricity use are not matched by carbon pricing for other forms of energy including heating (natural gas) and transport.

This report explores how a carbon tax can be introduced on household energy use and private transport in Scotland in a way that ensures that low-income households are protected.

The study illustrates how a green tax needs to interact with the wider benefit and tax system – particularly Universal and Pension Credit – to ensure that low-income households are protected and thereby balance environmental and social concerns.

The findings are based on modelling of energy use, and benefit policy changes taking effect in 2017/18.