Both domestic and international producers should be subject to a carbon tax, a new report from the Policy Exchange think tank has suggested.

Levying a tax on both companies based in the UK and those that export products to the UK would create a level playing field for British industry, according to the paper.

Such a move would also stop “carbon leakage”, under which products sold in the UK are produced abroad and don’t count towards Britain’s carbon budgets.

Policy Exchange recommended that the UK should remain within the European Union Emissions Trading Scheme until 2021, after which it should introduce its own carbon tax.

‘Border carbon adjustments are essential’

Writing in the introduction to the report, former Chancellor Lord Darling and former Foreign Secretary Lord Hague said: “Many challenges remain, most notably that of carbon leakage whereby energy intensive industries move abroad to avoid environmental taxes.

“Cleaning up our own energy system will mean little if we simply outsource our emissions.

“In the absence of a unified global carbon tax, border carbon adjustments are essential to ensure that British businesses are operating on a level playing field with those that are foreign-based.”

> Download the report