The Government has decided to follow the pattern set by the United States and the European Union and will introduce, by 2027, a carbon border adjustment mechanism (CBAM).
This will, Parliament’s Environmental Audit Committee (EAC) said, help to level the playing field between UK industries that must pay for the carbon they produce, and those abroad who provide goods into UK markets but are not subject to UK carbon pricing.
The CBAM will ensure highly traded, carbon-intensive products from overseas in the iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement sectors, face a comparable carbon price to those produced here.
The new rules will, the Treasury claimed, tackle “carbon leakage” by reducing the risk of production and associated emissions being displaced to other countries because they have a lower or no carbon price.
Carbon leakage undermines the UK’s efforts to decarbonise as the world transitions to net zero.
EAC chairman, Philip Dunne, said: “Imports to the UK make up 43% of the UK’s consumption emissions. These must be tackled, or the UK's efforts to decarbonise will be undercut. Applying an appropriate carbon price at the border will go a long way towards closing carbon loopholes.”
The announcement has been welcomed by the British Chambers of Commerce (BCC) with its Head of Trade Policy, William Bain, suggesting that it will provide certainty for investors and aid future growth and investment in low carbon sectors.
“A key issue will be the linkage of the UK and EU Emissions Trading Schemes (ETS), so that we avoid unnecessary trade and fiscal barriers for UK goods exports,” he concluded.
Stephen Phipson, Chief Executive of Make UK, called for the scheme to be implemented as soon as possible to align with EU time scales. The EU scheme entered into application in its transitional phase on 1 October 2023, with the first reporting period for importers ending 31 January 2024.
