The UK to implement a new import carbon pricing mechanism
by 2027 to support the decarbonisation drive.
Imports of iron, steel, aluminium, ceramics and cement
from overseas will face a comparable carbon price to those goods
produced in the UK.
Reduces the risk of ‘carbon leakage’, avoiding emissions
being displaced to other countries because they have a lower or
no carbon price.
Goods imported into the UK from countries with a lower or no
carbon price will have to pay a levy by 2027, ensuring products
from overseas face a comparable carbon price to those produced in
the UK.
The UK has a track record to be proud of on decarbonisation. We
were the first major economy to legislate for net zero and we are
reducing our emissions faster than any other G7 country.
Decarbonising UK industry forms an important part of delivering
the energy transformation needed to achieve net zero. But these
efforts will not succeed if decarbonisation in the UK simply
leads to higher emissions abroad.
The carbon border adjustment mechanism (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 tackle ‘carbon leakage’, 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 country’s efforts to decarbonise as the
world transitions to net zero.
The charge applied by the CBAM 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.
Taking this action will ensure the environmental integrity of our
decarbonisation policies and will give industry in the UK the
confidence to continue to invest in decarbonisation, with the
knowledge that it will result in a true net reduction in global
emissions.
Chancellor of the Exchequer 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.”
Today’s news comes as the government publishes its response to a
consultation on a range of domestic carbon leakage mitigation
measures – which found 85% of respondents said that carbon
leakage is a current or future risk to their decarbonisation
efforts. This is because not all jurisdictions are moving at the
same pace with the risk that UK emissions reductions do not
translate into global emissions reductions, but rather that UK
emissions get displaced to other less climate ambitious
countries. The action announced today will help address that
risk.
The design and delivery of the CBAM will be subject to further
consultation in 2024, including the precise list of products in
scope. The government will also engage with trade partners,
including developing countries, and affected businesses and
organisations, to minimise the impact on trade and the necessary
compliance steps.
Alongside a CBAM, the government is also announcing its intention
to work with industry to establish voluntary product standards
that businesses could choose to adopt to help promote their low
carbon products to customers; and to develop a framework which
measures the carbon content of goods, that could support other
decarbonisation policies in future.
And today, in addition to the government announcing a UK CBAM,
stakeholders including power, aviation and industrial sectors
have been invited to offer their views on proposed changes to the
UK Emissions Trading Scheme, that will ensure it continues to
support the UK’s progress to net zero.
A CBAM will work alongside the UK Emissions Trading Scheme to
mitigate the risk of carbon leakage. The ETS Authority is
consulting how to better target free allocations of carbon
allowances for industries most at risk of carbon leakage, under
the ETS. The Authority will also review whether free allocation
should be adjusted to reflect any changes to carbon leakage risk
for given sectors.
It is also setting out plans to ensure the ETS market continues
to offer an effective financial incentive that drives its
participants to decarbonise, following a call for evidence last
year, with industries being asked for their view a range of
potential measures – including on the design of a new Supply
Adjustment Mechanism.
The government remains committed to supporting industry to
decarbonise including with the Industrial Energy Transformation
Fund, the Net Zero Innovation Portfolio and £20 billion
investment in development of carbon capture and storage.
