Recommendation 14

HM Government Acknowledged

The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating carbon emissions. We are committed to building on our COP26 climate leadership by working with our international partners to develop a common global approach to carbon pricing and leakage. The UK is working internationally to promote carbon pricing as a key tool to help other countries deliver their climate targets. To this end we are active contributors to the World Bank’s Partnership for Market Readiness (PMR) and Partnership for Market Implementation (PMI) programmes, and bilaterally we are working through the UK Partnering for Accelerated Climate Transitions (PACT) programme. In parallel we are working with our G7 and G20 partners to build a common understanding of carbon leakage risks and develop the tools and insights that we will need to tackle it collectively. We support the important independent technical and analytical work of International Organisations, like the IMF and OECD, to close the technical and analytical gaps (for example, on the measurement of embodied emissions). Under our G7 Presidency last year, the UK drove forward action on global industrial decarbonisation of high- carbon sectors that are easily traded (e.g., steel, aluminium), in particular through the G7 Industrial Decarbonisation Agenda. We continue to work on these issues, actively engaging with Germany’s climate club proposal. We are also supportive of the increasing drive to collaborate on multilateral and plurilateral solutions for carbon leakage in the G20, WTO and other fora. Multilateral solutions will take time to develop, so we must consider the case for targeted and proportionate domestic measures in parallel. Therefore, as set out to Parliament on 16 May we have announced our intention to consult later in the year on a range of carbon leakage mitigation options, including on whether measures such as product standards and a CBAM could be appropriate tools in the UK’s policy mix. This announcement does not commit the Government to any course of action down the line, but will enable us to better understand our options. The consultative process follows BEIS’s Call for Evidence ‘Towards a market for low emissions industrial products’ which closed in February and BEIS’s current consultation on the ETS. The Government is clear that any policy or suite of policies we may pursue would need to carefully balance a range of priorities for the UK, both domestically and internationally, including compliance with WTO rules and our staunch commitment to free and open trade, alongside carefully considering the needs of developing countries. As we determine our future approach to carbon leakage, we will, of course, continue our ongoing engagement with our domestic and international partners as you recommend, and we will keep the House updated on developments.