The government is under legal pressure to tighten its climate policies, and pricing the fossil fuels used to heat homes and power cars could be part of the answer.

At a time when the UK government faces legal pressure to ramp up its climate policies, a new report has found that the UK could cut its carbon emissions by as much as 26% by pricing those generated by heating and road transport fuels.

Conducted by the London School of Economics and Political Science’s (LSE) Grantham Research Institute on Climate Change, the research found that extending the UK’s Emissions Trading Scheme (ETS) to heating and transport fuels could produce a “double dividend” by cutting emissions and expanding the economy by as much as 0.3% through the redistribution of the revenue raised to households and businesses.

The report followed a High Court ruling last week, which found that the UK government’s existing climate action plans were unlawful as they failed to demonstrate how they would meet legally binding targets under the Climate Change Act. The ruling underscored that courts take the legislated climate targets and obligations seriously, meaning the government must find new ways to reduce emissions beyond the power sector.

The heat and transport sectors present an obvious opportunity. Both are major contributors to global warming, accounting for 18% and 23% respectively of the UK’s total greenhouse gas emissions, the report found. But so far, the government has not put a price on emissions from these sectors in the way it has for industrial and power sector emissions.

Extending the ETS to heat and transport  would help push households to lower carbon alternatives to gas boilers such as heat pumps, while addressing tax breaks that make gas artificially cheaper than electricity, according to the LSE report. It would also increase take-up of electric vehicles and use of public transport.

With a carbon price on heat and transport fuels starting at £0 per tonne and rising to £80 by 2040, UK emissions across the economy could fall by an extra 26% by that date, the report said. If the price reached £40, emissions would fall by 16%, which would help the government meet the legally binding goal of net zero emissions by 2050.

“Our modelling shows that extending the UK ETS to transport and heating will lower greenhouse gas emissions and boost the economy,” Josh Burke, report co-author and Senior Policy Fellow