The UK has moved a step closer to imposing a carbon tax on all imports to stop companies from outsourcing their CO2 emissions to foreign countries.
An international agreement by the world’s largest rich democracies to take forward a “carbon border adjustment mechanism” could come as soon as next month.
The measure would see all imports to Britain and other G7 nations taxed on an assessment of how much carbon was involved in their production.
It is designed to complement national carbon prices and taxes, to fix the current situation which sees imported goods able to undercut those produced in the UK, the EU and other countries that impose a price on carbon emissions.
It is likely that the tax would not apply to any goods imported from countries which already put a levy of some sort on carbon, meaning the biggest effect would be on countries such as China.
Lucy Frazer, Financial Secretary to the Treasury, said: “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.”
Rishi Sunak is keen to find an “international solution” rather than imposing the tax unilaterally, i understands. The timing of any new levy would depend on the progress of diplomatic talks.
Germany is leading the co-ordinated efforts as part of its presidency of the G7 this year, but an agreement is not expected when the allies’ leaders meet in Bavaria in late June. The British team hopes that members will agree to accelerate their work on the plans.
Alok Sharma, President of the COP26 climate conference, used a speech in Glasgow on Monday to warn leaders against using geopolitical chaos and the Ukraine war as an excuse to slow the fight against climate change.
He said: “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.”