The UK Government has today (Dec 18) committed to introducing a Carbon Border Adjustment Mechanism (CBAM) by 2027. This welcome step will ensure that importers in a number of sectors face a carbon price equivalent to that of domestic producers.
For sectors like steel, cement, glass and ceramics, this will mean an end to being undercut by imports on the basis of varying carbon prices. However, while the UK has gone further than the EU by including the glass and ceramics sectors and pricing both Scope 1 and 2 emissions, it has decided against including electricity. Without ‘mutual recognition’ between the two schemes, this could leave some UK producers paying a carbon price top-up in order to export to the EU.
The UK CBAM is also set to come in a year later than the EU CBAM, leaving domestic producers open to the risk of the UK becoming a dumping ground for diverted exports to the UK. It also remains unclear as to how the UK Government intend to phase out free allowances after 2027, which could jeopardise the credibility of the Scheme on the international stage, with domestic producers potentially in receipt of ‘double protection’.
Elsewhere, the government announced that they intend to implement voluntary standards on the carbon intensity of some products, to encourage the production of lower carbon goods in the UK. The decision not to phase in mandatory standards is a disappointing one, with voluntary standards shown to be ineffective due to low uptake.
Laith Kharus Whitwham, Senior Policy Advisor at E3G said:
“The decision to implement a CBAM in the UK is an extremely welcome step that will apply the polluter pays principle on a broader basis and ensure domestic industries making efforts to decarbonise are not undercut by cheap high carbon imports. However, key decisions on the scheme’s design, including the vital phasing out of free allowances under the UK ETS, have been left for the next government, and there has been a missed opportunity to align the timing and design of the UK’s carbon pricing regime with that of the EU, risking higher near-term costs for domestic producers. The government’s decision to opt for voluntary, rather than mandatory, product standards is also disappointing, with voluntary measures rarely able to drive the scale of change needed for 2050.”
Jonny Peters, Senior Policy Advisor at E3G said:
“This decision is welcome and allows the next UK government to follow the EU in implementing a CBAM. However, unresolved EU trade issues are limiting the UK’s climate ambitions on CBAM – particularly on electricity trading, where the UK continues to trade with the EU on costly, inefficient post-Brexit terms, and has therefore decided not to include electricity in scope, unlike the EU. Future UK ambition on CBAM will remain bound up in EU trade relations. The best way forward to lower costs for British businesses and consumers is for the UK to link its Emissions Trading Scheme with the EU ETS before their carbon border taxes are introduced from 2026.”
Available for comment
The following experts are available for comment, please contact them directly:
Laith Kharus Whitwham, E3G Senior Policy Advisor
m: 07808045786 | email@example.com
Jonny Peters, E3G Senior Policy Advisor
m: +44 (0) 7954 201 039 | firstname.lastname@example.org
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