Consultation on UK carbon border tariff planned, HM Treasury confirms

Tue 21 Jun 2022
Posted by: Phillip Adnett
Trade News

Green Carbon Tax Consulation

The government is to start consulting on imposing a carbon tariff on imports to ensure that UK manufacturers of low-carbon goods are not disadvantaged by cheaper but higher emission imports.

The proposed carbon border adjustment mechanism (CBAM) would effectively impose a border tariff on goods imported from regions with lower carbon prices than the UK.

As explained by environmental publication, a UK CBAM would charge businesses for the carbon generated in the manufacture of imported products – to or above the level that they would have if the goods we produced in the UK.

The move is similar to proposals by the EU and US.

Carbon leaking

The CBAM would aim to stop “carbon leakage”, where industries look to avoid carbon pricing and climate regulations by relocating to countries with weaker environmental laws.

CBAMs are therefore seen as a way to prevent businesses from ‘offshoring’ their emissions and incentivise the development of low carbon products, reports Business Green.

An Environmental Audit Committee (EAC) report had previously suggested the UK should adopt a CBAM that is similar to the proposed EU and US models.

Report welcome

Responding to the report, the financial secretary to the treasury Lucy Frazer said countries should move together in pricing, regulating, and reducing carbon emissions.

“We are strongly committed to working with our international partners to develop a common global approach to carbon leakage. Multilateral solutions can take time to develop, however, and while we will continue to work on international solutions with partners, options for domestic action must be considered in parallel,” she said.

EAC chair Philip Dunne MP welcomed the government’s response and urged ministers to launch a CBAM “as soon as possible”, reports Edie.

Carbon trade

Carbon border tariffs remain contentious, with some observers fearing they risk creating new trade barriers that could drive up costs for businesses and consumers.

The EAC advised that to ensure any CBAM policy is effective, it should consult with sectors right across the economy.

Without a CBAM, the UK has signed post-Brexit trade deals with big emitting countries, the EAC argued. It warned that this could set a poor precedent for the environmental impact of future deals at a time when the UK’s position as COP26 host meant other nations were looking to it for leadership on sustainable international trade approaches.

EU and US plans

In March, the EU launched a plan to impose a world-first carbon dioxide emissions tariff on imports of polluting goods, reports Reuters.

The EU wants to introduce CO2 emissions costs from 2026 on imports of steel, cement, fertilisers, aluminium and electricity, protecting European industry from being undercut by cheaper goods made in countries with weaker environmental rules.

According to Scientific American, the US is watching developments in Europe, which could affect $16.9bn of US exported goods, a massive jump on an initial plan by the EU which would have only affected $2.8bn of exports.