• imports of iron, steel, aluminium, ceramics and cement from overseas will face a comparable carbon price to those goods produced in the UK
• reduces the risk of ‘carbon leakage’, avoiding emissions being displaced to other countries because they have a lower or no carbon price

Goods imported into the UK from countries with a lower or no carbon price will have to pay a levy by 2027, ensuring products from overseas face a comparable carbon price to those produced in the UK. 

The UK has a track record to be proud of on decarbonisation. We were the first major economy to legislate for net zero and we are reducing our emissions faster than any other G7 country.

Decarbonising UK industry forms an important part of delivering the energy transformation needed to achieve net zero. But these efforts will not succeed if decarbonisation in the UK simply leads to higher emissions abroad.

The carbon border adjustment mechanism (CBAM) will ensure highly traded, carbon intensive products from overseas in the iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement sectors face a comparable carbon price to those produced here.

The new rules will tackle ‘carbon leakage’, reducing the risk of production and associated emissions being displaced to other countries because they have a lower or no carbon price. Carbon leakage undermines the country’s efforts to decarbonise as the world transitions to net zero.

The charge applied by the CBAM will depend on the amount of carbon emitted in the production of the imported good, and the gap between the carbon price applied in the country of origin – if any – and the carbon price faced by UK producers.

Taking this action will ensure the environmental integrity of our decarbonisation policies and will give industry in the UK the confidence to continue to invest in decarbonisation, with the knowledge that it will result in a true net reduction in global emissions.  

Chancellor of the Exchequer Jeremy Hunt said:

This levy will make sure carbon intensive products from overseas – like steel and ceramics – face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.

This should give UK industry the confidence to invest in decarbonisation as the world transitions to net zero.

Today’s news comes as the government publishes its response to a consultation on a range of domestic carbon leakage mitigation measures – which found 85% of respondents said that carbon leakage is a current or future risk to their decarbonisation efforts. This is because not all jurisdictions are moving at the same pace with the risk that UK emissions reductions do not translate into global emissions reductions, but rather that UK emissions get displaced to other less climate ambitious countries. The action announced today will help address that risk.

The design and delivery of the CBAM will be subject to further consultation in 2024, including the precise list of products in scope. The government will also engage with trade partners, including developing countries, and affected businesses and organisations, to minimise the impact on trade and the necessary compliance steps.

Alongside a CBAM, the government is also announcing its intention to work with industry to establish voluntary product standards that businesses could choose to adopt to help promote their low carbon products to customers; and to develop a framework which measures the carbon content of goods, that could support other decarbonisation policies in future.

And today, in addition to the government announcing a UK CBAM, stakeholders including power, aviation and industrial sectors have been invited to offer their views on proposed changes to the UK Emissions Trading Scheme, that will ensure it continues to support the UK’s progress to net zero.

A CBAM will work alongside the UK Emissions Trading Scheme to mitigate the risk of carbon leakage. The ETS Authority is consulting how to better target free allocations of carbon allowances for industries most at risk of carbon leakage, under the ETS. The Authority will also review whether free allocation should be adjusted to reflect any changes to carbon leakage risk for given sectors. (See previous news item, note the UK emissions reduction owes much to the Carbon Price Support (CPS) levied on coal powered electricity generation. The CPS resulted in coal-fired electricity generation falling from 40% of total GB electricity generation in 2013 to only 3% in 2019.)

It is also setting out plans to ensure the ETS market continues to offer an effective financial incentive that drives its participants to decarbonise, following a call for evidence last year, with industries being asked for their view a range of potential measures – including on the design of a new Supply Adjustment Mechanism.

The government remains committed to supporting industry to decarbonise including with the Industrial Energy Transformation Fund, the Net Zero Innovation Portfolio and £20 billion investment in development of carbon capture and storage.

The announcement was welcomed by industry bodies..“With over 90% of global steel production facing no carbon cost, it is only right that a new carbon border policy is put in place. However, implementing the UK scheme one year after the EU CBAM starts is hugely concerning.” Gareth Stace, director general of industry group UK Steel.