MPs claim pros of carbon border adjustment mechanism outweigh cons, arguing that putting a price on imports could play a major role in reducing the UK’s consumption emissions

MPs on the Environmental Audit Committee have urged the UK government to start work on a carbon border adjustment mechanism (CBAM) that could ensure goods imported to the UK face a price on their carbon emissions equivalent to the levy raised on domestic products through the emissions trading scheme (ETS).

In a report published this morning, the select committee argued the government needs to bolster its carbon pricing regime, warning the UK’s current approach is “insufficient” to drive effective decarbonisation and does nothing to stop so-called carbon leakage, where the production of goods is offshored to jurisdictions with lower carbon prices and more relaxed climate policy regimes.

The report comes just weeks after EU member states backed Brussels proposals for a CBAM on products imported to the bloc, in a bid to combat unfair competition and pressure governments around the world to introduce their own carbon pricing mechanisms. The proposals would see a CBAM phased in over three years before taking full effect in 2026.

The UK’s current approach to carbon pricing is centred on the UK Emissions Trading Scheme, a cap-and-trade scheme which sets an overall limit on the total level of greenhouse gas emissions that can be generated from certain energy intensive industries, electricity generation, and aviation. No carbon levies exist for imports, despite some estimates suggesting nearly half of the UK’s overall carbon footprint comes from emissions generated overseas to produce goods for UK consumption.

But today, MPs on the EAC have argued UK policymakers should now deliver a coordinated set of policies that can bolster the UK’s carbon pricing regime, arguing Ministers should boost support for low carbon technologies, tighten regulations and product standards, and introduce a CBAM that applies an equivalent carbon price on imports as is applied to domestic production.

Putting a price on imported carbon emissions would not only create a level playing field with countries operating jurisdictions without carbon prices imposed, but it will incentivise sectors around the world to move away from carbon-intensive practices and promote uptake of low-carbon products, the EAC said.

“The targets, timetable and overall strategy for meeting net zero have been set: now the work must speed up to make the ambitions a reality,” said EAC chairman Phillip Dunne. “A carbon border adjustment mechanism can drive change not only by addressing carbon leakage, but by driving low-carbon change across our economy.”

Dunne stressed it was time for the UK to take more responsibility of the emissions produced overseas in the manufacture of products for the UK market. “Our committee is clear that the pros of a CBAM outweigh the cons,” he said. “For too long the emissions from our consumption have effectively been ‘offshored’, leaving the problem as out of sight and out of mind. But we must all take greater responsibility for our consumption, and the practices that our businesses and organisations adopt.”

The Committee has stressed that it is necessary that the UK’s CBAM is designed in a way that does not lead to producers pushing the costs of high carbon products on to consumers, exacerbating the current cost of living crisis.   

It has also urged the government to consult closely with all sectors of the economy when developing the mechanism, noting that different sectors will require different levels of support depending on their decarbonisation needs.

“Our committee is under no illusions that this will be a challenging policy to get right, with a clear advantage to moving multi-laterally with other trading partners, and therefore all businesses must have a voice in the discussions and the government must be upfront with its intentions,” Dunne said.

The EAC has argued that an effort to create a national CBAM is essential in the short-term to spur much-needed cooperation between different countries on carbon pricing and carbon leakage so as to catalyse more rapid global decarbonisation.

“While multilateral solutions remain the most effective way to address carbon leakage, the process to agree these is lengthy, so unilateral action is essential in the short-term,” the report notes. “Unilateral action can also spur co-operation on multilateral measures and incentivise countries to strengthen their own carbon pricing and decarbonisation measures. The government should continue to pursue multilateral solutions, including commencing action towards linking the UK and EU ETS, at the same time as developing its own carbon border approach.”

The EU intends to introduce a CBAM from 2023 that would initally apply to imports of certain iron and steel, cement, fertiliser, and aluminium products, and electricity into the bloc. Under the proposals, which were backed by member states’ finance ministers last month, EU importers would purchase CBAM certificates closely mirroring the EU Emissions Trading System (ETS) price from 2026 onwards that would bring the carbon price on imports in line with the carbon price paid by EU producers.

A spokesperson from the Treasury said the government recognised the importance of ensuring the UK’s ongoing drive to reduce emissions generated at home were complemented by an effort to tackle the issue of carbon leakage.

“The UK is leading the way on the transition to net zero, has reduced emissions faster than any other country in the G20 and continues to have the most ambitious climate targets for 2030,” they said. “As we transition to net zero, we recognise the importance of continuing to address the risk of carbon leakage to ensure that our ambitious policy of decarbonisation is not undermined. This is a global problem, which is why we’re working with our international partners to address this and other climate challenges as well as exploring domestic options.”

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