Chancellor John Healey is reportedly preparing to introduce a “green tax” on imported fuels in the upcoming Budget, raising concerns about potential increases in petrol prices. The proposed measure, known as a carbon border adjustment mechanism (CBAM), would impose net zero-related charges on refined fuel imports, including petrol and diesel, in an effort to create a level playing field between domestic refineries and foreign suppliers.

Currently, UK refineries shoulder net zero compliance costs that imported fuels evade, allowing cheaper foreign fuel to undercut domestic producers. The CBAM would address this imbalance by subjecting imports to similar environmental levies as locally refined products. Although fuel duty has been frozen until the end of 2026, and would shield motorists from immediate cost increases, questions remain over whether the freeze will be extended beyond this date. Critics argue that the introduction of this green tax could ultimately lead to higher prices at the pump.

John O’Connell, chief executive of the TaxPayers’ Alliance, criticized the proposal as a disguised tax increase. He said the carbon charges would act like a tariff, inflating fuel costs and supply chain expenses that would impact ordinary families. O’Connell called on the government to reject the introduction of what he described as “punitive green taxes” in the forthcoming Budget.

Government officials have indicated the policy is under active consideration. In response to a parliamentary written question, James Murray, the Paymaster General, confirmed that the government is evaluating the feasibility and potential effects of applying CBAM to refined petroleum products. Murray emphasized the government’s recognition of the UK refining sector’s importance to energy security and the industrial base.

Energy Secretary Miatta Fahnbulleh is reportedly supportive of the expansion of CBAM and is believed to have advocated for the measure directly with Chancellor Healey. The Chancellor, meanwhile, faces significant fiscal challenges, with government debt exceeding £3 trillion and interest payments reaching £8.8 billion in August alone. The UK imported £13.1 billion worth of refined oil products in the 12 months leading up to August 2026.

Andy Haldane, former chief economist at the Bank of England, expressed doubts about the government’s willingness to implement difficult fiscal measures in the forthcoming Budget. He questioned whether political capital would be sufficiently deployed to make “hard choices” necessary for managing public finances in a challenging economic environment.

Refineries in the UK produce a variety of fuel products, including petrol, diesel, jet fuel, and fuel oil, for both domestic consumption and export. The introduction of a CBAM on imported refined fuels could have broad implications for the energy sector and consumers as the government seeks to balance environmental goals with economic pressures.