The G7 is considering beginning negotiations on a Carbon Border Adjustment Mechanism (CBAM) at its meeting in June. Liz Truss had appeared keen on promoting CBAM at the G7 last year but the idea seemed to have been put on the back burner and the Board of Trade Report in July , (21/7/21) promoted a laisssez faire approach. It appears that the idea is now back on the table in the UK. Lucy Frazer, Financial Secretary to the Treasury, has stated that..
“We are announcing that it is 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 carbon border adjustment mechanism (CBAM) could be appropriate tools in the UK’s policy mix.
“A CBAM applies a carbon price to specified imports, in order to mitigate differences in carbon pricing between jurisdictions, and therefore reduce the risk of carbon leakage.”
On Monday, at a speech in Glasgow marking 6 months after COP26, Alok Sharma argued for the need to speed up the fight against climate change rather than renege because of the war in Ukraine; especially as wind and solar are now cheaper than oil and gas in the majority of the world….
“The actions of the Putin regime have pushed up fossil-fuel prices globally. That has thrown our situation into stark relief. We see clearly the dangers of energy systems powered by foreign fossil fuels.
“We see the benefits of low-cost homegrown renewables, the price of which cannot be manipulated from afar. In short, we see that climate security is energy security and that we must break our dependency on fossil fuels.”
Further information on BCAs:
* The Government is taking ambitious domestic action to tackle climate change and recently opened a consultation on developing the UK Emissions Trading Scheme (ETS), so the UK can become the world’s first net zero carbon cap and trade market. While domestic action is critical, climate change is a global issue. When the UK took on the COP26 Presidency, only 30% of the world was covered by net zero targets – now over 90% of the global economy is committed to net zero. In 2021, the UK placed climate change and nature at the top of the international agenda during its G7 and COP26 presidencies, presiding over the agreement of the Glasgow Climate Pact, to speed up the pace of climate action.
The Government also wants to see other countries do more to drive down their own emissions and we continue to work on the global stage to support more ambitious international action. Recent global events and the resulting increase in energy prices reinforce the importance of transitioning to clean energy to ensure energy security and reduce our dependency on imported fossil fuels.
In parallel, Government is considering domestic action to continue to ensure the integrity of UK action to reduce its carbon emissions against carbon leakage, as our existing carbon leakage protection measures, including free allowances under the UK ETS, evolve to achieve our net zero objectives. This will also ensure that UK businesses are not disadvantaged. Carbon leakage is the displacement of production, and associated emissions, from one jurisdiction to another, due to different levels of carbon pricing and climate regulation across those jurisdictions.
The best way to prevent carbon leakage would be for all countries to move together in pricing, regulating, and therefore reducing carbon emissions. We are strongly committed to working with our international partners to develop a common global approach to carbon leakage. Multilateral solutions can take time to develop, however, and while we will continue to work on international solutions with partners, options for domestic action must be considered in parallel.
The Government is therefore exploring a range of policies that could potentially mitigate future carbon leakage risk. These include policies to grow the market for low emissions industrial products, on which the Department for Business, Energy and Industrial Strategy recently undertook a Call for Evidence. Today, we are announcing that it is 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 carbon border adjustment mechanism (CBAM) could be appropriate tools in the UK’s policy mix. A CBAM applies a carbon price to specified imports, in order to mitigate differences in carbon pricing between jurisdictions, and therefore reduce the risk of carbon leakage.
The Government is clear that any policy or policies 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 taking into account the needs of developing countries. As we determine our approach to carbon leakage, we will continue our ongoing engagement with our domestic and international partners.