The government has today (18 December) confirmed it “will implement a carbon border adjustment mechanism (CBAM) by 2027” in its response to a public consultation on “addressing carbon leakage risk to support decarbonisation”.
The delivery of a UK CBAM will be “subject to further consultation in 2024” and will apply to imports from the aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors.
Under the CBAM, businesses exporting the affected goods into the UK will be required to pay a levy if the country of origin has a lower carbon price than the UK or no carbon price at all.
Levy
Reuters reports that the charge will “depend on the amount of carbon emitted in the production of the imported good, and the gap between the carbon price applied in the country of origin - if any - and the carbon price faced by UK producers”.
Chancellor Jeremy Hunt said:
"This levy will make sure carbon intensive products from overseas – like steel and ceramics – face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.
"This should give UK industry the confidence to invest in decarbonisation as the world transitions to net zero."
Long-term ETS plan
The Department for Energy, Security and Net Zero has also today released a series of new public consultations relating to the UK Emissions Trading Scheme (UK ETS) as well as its plan for extending the programme until 2050.
The UK launched its own ETS to replace the country’s participation in the EU’s equivalent scheme following Brexit. UK ETS bids to “increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses,” the government said at its launch.
The ‘long-term pathway for the UK ETS’ paper includes plans to “continue developing the scheme and to explore its expansion to new sectors”.
ETS consultations
The UK ETS Authority, which implements the scheme alongside partners in the devolved administrations in Scotland, Wales and Northern Ireland, is seeking views on “a number of proposals to develop future markets policy”. Businesses can respond to this open consultation before 12 March here.
A second consultation, with the same deadline, has been launched on “proposals to alter free allocation methodology for stationary sectors to better target those most at risk of carbon leakage”, which can be found here.
IOE&IT view
Hemita Bhatti, the Institute of Export & International Trade’s (IOE&IT’s) head of policy, said today’s announcement ends months of speculation from the industry on whether the UK would follow the EU in introducing a CBAM.
“Today, the UK made the much-anticipated announcement of its own CBAM, which aims to level the playing field for both UK industry and international importers contributing to carbon leakage.
“With the EU's CBAM in trial, hopes are high for interoperability between the two systems to avoid tariffs on UK exporters to the EU. Critical to its success is the linking of ETS schemes in both markets. A call for further consultation on this is welcomed.”
Bhatti added that IOE&IT’s policy team will be assessing today’s announcements in more detail over the coming days and weeks.
She invited IOE&IT members and the wider trader community to engage with IOE&IT on upcoming consultations relating to both CBAM and UK ETS.
EU precedent
The European Commission describes the CBAM as “its landmark tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries”.
The EU’s trial phase for businesses to report emissions began at the start of October this year. As the Daily Update explained:
“In this transitional period, no levies will be charged but businesses will be required to record and report on the embedded greenhouse gas emissions produced by their production processes.
“The first report must be submitted by 31 January 2024, but CBAM declarants can also choose from a set of default emission measures when their specific level of emissions cannot be measured. This will only remain an option until July 2024.”