Carbon tariffs on imports – UK Government consultation announced

It was fitting, perhaps, that HM Government announced that there is to be a consultation into the introduction of a carbon border adjustment mechanism (‘CBAM’) on one of the warmest mid-summer’s day on record. The announcement is in response to a report by the Environmental Audit Committee (‘EAC’) of cross-party MPs in April this year, but, given the reluctance that the government has previously shown to EAC recommendations, it remains to be seen whether the consultation leads to any changes or turns out to be just hot air.

CBAMs are being looked at elsewhere in the world – most notably in the EU where EU wide agreement on the introduction of a CBAM was reached in March this year. The mechanism would introduce a tax on the importation of products manufactured outside the UK where the emissions created by the manufacture and transport of those products exceed the emissions that would have been generated had it been made in the UK. The rational for a CBAM is that it may deter business from offshoring their carbon emissions and, on the basis that the buyer of products have some responsibility for the emissions generated by their manufacture, supports the doctrine that the ‘polluter pays’.

CBAMs were considered quite radical years ago, but the increasing urgency around climate change has brought the concept into mainstream thinking. Once major economic blocks like the EU introduce a CBAM, it may well follow that other blocks around the world will be more likely to follow suit. But there are some significant hurdles to overcome. For instance, the EAC report recommending that the government look at a UK CBAM, also suggests that a CBAM does no harm to the consumer. Its hard to see how the introduction of carbon tariffs via a CBAM would not lead to an increase in the cost of such products (or derivatives of such products) when supplied to UK consumers. Some would say that increasing the cost of products with higher carbon footprints is the objective of a CBAM.

While a UK CBAM will have the potential to radically alter the environmental tax landscape in the UK, it is unlikely to be introduced anytime soon. We continue to monitor developments in all areas of environmental taxation with a view to helping public and private sectors to plan for the inevitable changes that are on the way.

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