Developing a UK CBAM: government response

The government has published its full response to the House of Commons' Environmental Audit Committee report on carbon border adjustment mechanisms (CBAMs). The response reiterates the government's intention to consult on possible measures, including the introduction of a UK CBAM, whilst stressing that this does not commit the government to introducing any particular measures at this stage. Perhaps understandably, there is also explicit recognition that, at a time of high inflation and a cost of living crisis, it will be necessary to consider the potential impact of any measures on business and consumer prices as part of this process.

Background

The Environmental Audit Committee published its Report, "Greening imports: a UK carbon border approach" on 4 April 2022. In that Report, the Committee recommended that the government should commence work immediately on developing a comprehensive UK carbon border approach, in order that this might be implemented during the 2020s. In particular, the Committee recommended that this should 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 Committee called on the Chancellor of the Exchequer to provide an initial report to the House on progress on a CBAM not later than Budget 2023, whilst the government should also build on its COP26 climate leadership internationally through pursuing long-term multilateral solutions alongside an ambitious UK approach.

Government response

The government has now published its full response to the Committee recommendations.

The response reiterates the government's commitment to consult, later this year, on a range of carbon leakage mitigation options, including on a UK CBAM. However, the response also stresses that this does not commit the government to introducing a CBAM, but will enable the government to better understand and develop its options. The response notes that if implemented, differing approaches may be required for certain sectors, types of firms, and geographical locations and that a careful assessment on the potential impact of any carbon leakage mitigation measures on business and consumer prices will also be necessary.

The response also agrees with the Committee on the importance of multilateral solutions and that the best way to address carbon leakage would be for all countries to move together in pricing and regulating carbon emissions and sets out the government's involvement within the G20, WTO and other organisations in this regard. However, the response also notes that multilateral solutions will take time to develop, so that it is necessary to consider the case for targeted and proportionate domestic measures in parallel.

As regards EU CBAM proposals, the response reports that the UK is actively engaging with the EU on their CBAM proposals. The response highlights that "the UK has ambitious carbon pricing through our emissions trading scheme and Carbon Price Support mechanism. We expect the EU CBAM to take account of this in its implementation".