UK carbon taxes can cut GDP, but recycling the revenue back into the economy softens the blow. That is the main finding from a new NIESR discussion paper that uses the NiGEM model to test carbon pricing under different levels of policy uncertainty. The study compares no, weak, baseline, and extreme uncertainty scenarios. Higher uncertainty adds extra GDP losses, and those losses grow as uncertainty gets worse. The paper argues that predictable and credible climate policy is not just a political preference. It is an economic input that shapes investment and transition costs. For anyone tracking carbon pricing, the takeaway is practical. A carbon tax with recycled revenue performs better than one without, but the benefit erodes when investors cannot see a stable policy path. That gives policymakers a concrete reason to lock in a clear trajectory early.
