Last October we submitted a CCL response to a consultation on Carbon Border Adjustments instigated by the House of Commons’ Environmental Audit Committee. They received 27 such submissions from organisations from the TUC to the WWF and even HM Treasury. The resulting report was released today and, I’m glad to say, it has many excellent recommendations which we can hope the Government will take notice of.
They’re not really talking about a full blown carbon-tax and associated border adjustment. Instead, this just relates to the UK’s Emissions Trading System (ETS) in which big emitters such as power stations and steel-works are required to pay for permits to pollute. However, as with a full carbon tax, the effect is to make UK businesses less competitive and, to compensate, the UK government at present gives free permit allocations to affected companies. This is not really a very good way to do things as the link between free-permits and exports/imports is rather tenuous. The consultation concerns whether tariffs on imports would be a better way to do things.
You might be wondering about another aspect of “border adjustments”—rebates of carbon-pricing to exporters—but one of the things I leaned from reading this report is that rebates are far more likely to fall foul of World-Trade-Organisation restrictions than import tariffs. I can’t say I’m very sure why but it is an interesting point for us to bear in mind when talking about CCL policies in this area.
On the whole, I’m quite pleased with what I have read. Our own submission gets referenced multiple times and we are even quoted on the issue of returning the tariff-income to ordinary citizens as a way to compensate for resulting increase in prices. The report will certainly help to put us on the map.
But it’s the committees own conclusion which please most. To pull out a few quotations:
“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 policy response is needed to address this; we consider that a UK carbon border approach is the most appropriate response.”
“The UK’s carbon border approach needs to comprise a set of complementary policies, designed to drive industrial decarbonisation in the UK and globally.”
“We recommend that the Government 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 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”
“We recommend that the Government… 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.”