A “modest” uniform carbon tax of £20 a tonne would have a negligible impact on consumer prices, according to a new study that attempts to make the case for wider adoption of carbon pricing policies.

The study from the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at London School of Economics and Political Science argues that applying the tax to all fuels would increase UK consumer prices by up to just 0.9 per cent, assuming all costs were passed along supply chains fully.

However, the report, which was authored by David Grover, Ganga Shreedhar and Dimitri Zenghelis, argues that the true cost impact on consumers is likely to be even lower, given the manner in which the carbon tax would incentivise green behaviour change, drive business innovation, and provide the Treasury with revenues that it could recycle back into the economy.

“In reality [the] impact would likely be still smaller than these estimates suggest because our analysis has not allowed for any of the input substitution, innovation, production method change, or new investment behaviour that industries would exhibit to avoid the cost of carbon pricing,” the paper stated.

Opponents of carbon taxes argue they would impose costs on consumers and undermine the competitiveness of carbon intensive industries. Last year the government moved to ease these concerns, exempting a raft of energy intensive industries such as steel and concrete manufacturing from existing carbon taxes and ‘green levies’.

However, the new paper argues only a handful of industries that together account for around two per cent of UK GDP would face production cost increases that could result in their international competitive position being compromised.

“Carbon policies will provide incentives to increase energy efficiency and resource productivity which could afford UK producers a competitive advantage in the long term, in a world where fossil fuel prices could rise and carbon reduction policies are likely to become more widespread and ambitious,” the paper said.

It added that industries that are disproportionately impacted by carbon taxes should be provided with policy support to help them adapt to carbon pricing measures. “The correct policy response is not to resist this change but to identify vulnerable sectors and buffer labour market participants against its sharpest effects,” the paper said. “Countries and firms that resist enduring change and innovation may not be acting in their long-term interests.”