Fifth Report - Greening imports: a UK carbon border approach

We recommend that the Government commence work immediately on developing a comprehensive UK carbon border approach, in order that this might be implemented during the 2020s. We recommend that this include a CBAM as part of a co-ordinated set of … Read more We recommend that the Government commence work immediately on developing a comprehensive UK carbon border approach, in order that this might be implemented during the 2020s. We recommend that this include a CBAM as part of a co-ordinated set of policies including product standards, alongside work to build consensus with trading partners, industry and consumers on the need for this policy response. The Chancellor of the Exchequer should provide an initial report to the House on progress on a CBAM not later than Budget 2023. We recommend that the Government build on its COP26 climate leadership internationally through pursuing long-term multilateral solutions alongside this ambitious UK approach. (Paragraph 34) Greening imports: a UK carbon border approach 47 Geopolitical considerations Show less

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We recommend that the Government: a) Set out in its response to this report: b) how it intends to work with stakeholders in the EU and UK to understand how the proposed EU CBAM, would affect the UK, including in … Read more We recommend that the Government: a) Set out in its response to this report: b) how it intends to work with stakeholders in the EU and UK to understand how the proposed EU CBAM, would affect the UK, including in Northern Ireland; and c) how it intends to ensure open and transparent communication on progress on its actions to ensure businesses do not face any unreasonable barriers to trade, to provide greater clarity to UK industry; d) Engage directly with affected stakeholders in Northern Ireland and the EU during the design stage of any UK carbon border approach, and e) Before the end of 2022, launch a consultation on measures to link the UK and EU emissions trading schemes. (Paragraph 72) Further design considerations Show less

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We recommend that the Government: a) clearly define its objectives for any carbon border approach at the outset, and ensure the choice of policy options and design consideration at each stage is led by these objectives. These should encompass the … Read more We recommend that the Government: a) clearly define its objectives for any carbon border approach at the outset, and ensure the choice of policy options and design consideration at each stage is led by these objectives. These should encompass the need to drive decarbonisation across Greening imports: a UK carbon border approach 49 the economy to address climate change, whilst ensuring low- and middle-income countries, vulnerable households and wider environmental goals, such as nature, are not adversely impacted; b) During the design stage of the carbon border approach, engage with industrial stakeholders and conduct impact analysis across sectors, so as to understand the most effective policy instruments and implementation timescales for each sector and ensure industries at all stages of the value chain, including end users, are involved in the design of the carbon border approach. This engagement should be conducted through specific forums which bring stakeholders, including industry, academics, the environmental community and consumer groups, together alongside representatives from all relevant Government departments. c) Carry out a specific assessment of the impact on SMEs during the design phase of the carbon border approach, and set up a forum for engagement with SMEs. The UK’s carbon border approach should also include a plan for communicating changes with SMEs and should ensure that ease of administration is built into design. Show less

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We recommend that the Government, at the design stage: a) Include a strategy to engage with the public in the design of the carbon border approach to develop and maintain public support and keep the public informed of the changes … Read more We recommend that the Government, at the design stage: a) Include a strategy to engage with the public in the design of the carbon border approach to develop and maintain public support and keep the public informed of the changes that would occur, the rationale and methodology supporting the changes, and their impact and timescales; and b) Conduct analysis to understand any potential impact on consumers, including vulnerable and low-income households, and ensure the carbon border approach includes any measures needed to address this. Show less

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We recommend that the Government: a) Ensure, through the oversight of both Cabinet Committees on Climate Action, that the UK’s carbon border approach is aligned with existing environmental, trade, development and fiscal policy, through both its design and implementation stages. … Read more We recommend that the Government: a) Ensure, through the oversight of both Cabinet Committees on Climate Action, that the UK’s carbon border approach is aligned with existing environmental, trade, development and fiscal policy, through both its design and implementation stages. This should include setting out how the carbon border approach would interact with the tax and customs arrangements in Freeports; and b) During the design stage, establish methods for monitoring and understanding the impacts of the carbon border approach once implemented. This should include mechanisms for periodic consultation with stakeholders, including those in industry, academics, the environmental community and consumer groups. We expect any statement of policy on the UK’s carbon border approach to be presented to Parliament. (Paragraph 107) Greening imports: a UK carbon border approach 51 Show less

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Effective carbon pricing is crucial to decarbonisation, but cannot be achieved without effective anti-carbon leakage policies in place. The Government’s current approach to addressing the risks of carbon leakage, including free allocation of Emissions Trading Scheme (ETS) allowances, is insufficient on its own to incentivise industrial decarbonisation effectively. A clear …

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Multilateral and global approaches to carbon pricing represent the most appropriate way to support global decarbonisation. Since the process to negotiate and agree these is lengthy, they cannot provide the urgent action necessary in the short term. Pursuing a unilateral carbon border approach does not preclude continuing to push for …

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While net zero policies address the UK’s territorial production emissions, 43% of the UK’s consumption emissions arise from imports. The UK’s principal carbon pricing mechanism, the ETS, applies to domestic production, but no carbon price is currently applied to imports of the same products. A CBAM could address this, enabling …

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Alongside CBAM, the UK’s carbon border approach needs to comprise a set of complementary policies, including product standards, to tackle consumption emissions beyond those covered by explicit carbon pricing, and support decarbonisation across the economy. Careful design is needed to ensure the carbon border approach is successful in achieving its …

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The UK is an open, trading economy, and trade can be a powerful lever to drive environmental outcomes. Careful design, alongside inclusive engagement with trading partners, is needed to ensure that any CBAM and wider carbon border approach are aligned with the UK’s international obligations and commitments, including the principle …

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As the UK continues to negotiate its own trade agreements following exit from the European Union, there is an opportunity to align trade policy with the UK’s role as a leader in climate change action; further analysis is required to understand how the UK’s carbon border approach might interact with …

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Our recommendations to Government on the design of the carbon border approach are as follows: a) to ensure, from the outset, that the carbon border approach is designed to adhere to the principles of common but differentiated responsibilities and respective capabilities set out in the Paris Agreement and Glasgow Climate …

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In our view, the Government’s commitment to work with stakeholders to understand the potential impact of an EU CBAM on UK industry and ensure no unreasonable barriers to trade is welcome. Given the potential UK impacts, clarity is needed on how the Government intends to do this, and urgently, given …

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It is at present unclear how the proposed EU CBAM might impact the UK, particularly Northern Ireland, where electricity generators are currently under the scope of the EU’s ETS. We understand that this is a dynamic discussion which depends on wider continuing negotiation between the UK and EU, as well …

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The Government has committed to ensuring businesses do not face any unreasonable barriers to trade; further detail would be welcome on how it plans to work with stakeholders in the EU and UK to achieve this. Given that electricity generators in 48 Greening imports: a UK carbon border approach Northern …

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The UK and EU have agreed to consider linking the UK and EU ETS systems, which would exempt UK producers from the EU’s CBAM (and vice versa), simplifying administrative processes for UK-EU trade; as linking can be a lengthy process, it is important for exploratory work to commence on this …

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As the report of the Treasury’s Net Zero Review notes, there can be no one-size-fits- all mechanism to address carbon leakage risks. The UK’s carbon border approach needs to comprise a set of complementary policies, designed to drive industrial decarbonisation in the UK and globally. A CBAM will be an …

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To navigate the design options available and ensure a policy response that is effective in achieving its objectives, it is important that the Government articulate from the outset the objectives of the UK’s carbon border approach, so that the design is led by these, and understand the potential impacts to …

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Pricing the carbon element, so low-carbon products become less expensive than high-carbon ones, is a powerful lever to reduce consumption emissions, to support the development of low-carbon products and increase access to such products. Currently, high energy prices and rises in inflation are contributing to stark rises in living costs; …

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The UK’s carbon border approach needs to be aligned with the Government’s wider environmental policies, and integrated into trade, development and fiscal policy. The context for carbon border measures is not fixed, and CBAM in particular represents a new policy lever. It is important that the UK’s design for a …

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