The UK should draw up plans for a levy on carbon-intensive imports to protect domestic industry and drive down greenhouse gas emissions, MPs said on Monday.
A “carbon border adjustment mechanism” (CBAM) would reduce the risk of companies offshoring production to avoid the domestic UK tax on carbon that is applied to certain polluting industries, according to a report by the House of Commons environmental audit committee.
It would provide an incentive to industries at home and abroad to reduce the emissions associated with their goods, which is key to achieving climate targets, the EAC said.
“Our committee is clear that the pros of a CBAM outweigh the cons. For too long the emissions from our consumption have effectively been ‘offshored’, leaving the problem as out of sight and out of mind,” said committee chair Philip Dunne.
Such a tax would drive “low-carbon change across our economy”, though it “will be a challenging policy to get right”, he added.
The UK has committed to achieving net-zero emissions by 2050, which will require cutting pollution from heating, buildings, transport and from the energy sector.
Carbon pricing has attracted increasing attention over the past 18 months, and the EU is planning to introduce the world’s first CBAM that will apply to certain goods in sectors including cement and aluminium.
The mechanism would “give us a tool to speed up the decarbonisation of our industry, while protecting it from companies from countries with less ambitious climate goals”, said Bruno Le Maire, France’s minister for economic affairs, finance and recovery, in March.
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The bloc’s proposal provoked opposition last year from exporting countries including Russia, who said it would hit their economies and warned that the mechanism must not breach World Trade Organization rules.
In the UK, some polluting companies are required to buy carbon allowances under the national emissions trading scheme (ETS), which gives them permission to emit a tonne of the greenhouse gas. The EU has a parallel scheme, the EU ETS.
The price of the credits traded in both systems soared to record highs this year, prompting complaints from industry that they were struggling to manage rising carbon costs and were at a disadvantage to competitors based in countries not subject to such a levy.
The EAC said that imported emissions were not included under the UK’s current carbon pricing system, although they make up close to half of the nation’s overall “consumed” carbon dioxide.
A CBAM should “ensure an equivalent carbon price is applied to imports as is applied to domestic production”, the committee said. It added that the government should launch the new levy this decade, noting that the EU aimed to have its system in place by 2023.
The MPs also said the government should consult business and other stakeholders to address concerns that the levy could be passed on to consumers, worsening the cost of living crisis. The EAC also urged ministers to consider how to use the money raised by a CBAM, and the impact the mechanism could have on the most vulnerable.
The committee acknowledged that a multilateral carbon levy system would be more effective in driving down global emissions than action by UK alone. But it said that unilateral action could “spur co-operation on multilateral measures and incentivise countries to strengthen their own carbon pricing and decarbonisation measures”.