The United Kingdom has unveiled plans to implement a carbon pricing mechanism on imports by 2027, targeting key sectors, including iron, steel, aluminium, glass, ceramics and cement, fertilisers and hydrogen. The carbon border adjustment mechanism (CBAM) expects to impose a carbon price comparable to that faced by domestically produced goods to address the risk of ‘carbon leakage,’ where production and emissions are shifted to countries with lower or no carbon pricing, undermining global efforts toward net zero emissions. The measure will apply a charge that depends 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 and the carbon price faced in the UK.
The CBAM will work alongside the UK Emissions Trading Scheme and it should undergo further consultations in 2024, with a focus on engaging trade partners and affected entities to minimise trade impacts. Among the measures planned by the British government, there is also working with industries to establish voluntary product standards and collaborating with stakeholders on proposed changes to the UK Emissions Trading Scheme.
On 1 October 2023, the European Union launched the first phase of its own CBAM, that expects to impose CO2 emissions tariffs on imported cement, iron, steel, aluminium, fertilisers, electricity and hydrogen. The measure is scheduled to start collecting CO2 emission charges at the border in 2026. The UK’s CBAM expects to align with EU timescales to prevent potential carbon price discrepancies, and to avoid unnecessary trade and fiscal barriers for UK goods exports.