UK should take into account exporters’ views on its own CBAM – IISD

The UK should address concerns raised by governments and industries in exporting countries about its own proposed CBAM so that its mechanism is not seen as a form of protectionism. This is according to a study by the International Institute for Sustainable Development (IISD) on the country’s carbon strategy.

The UK government introduced its own standalone emissions trading system (ETS) in 2021. In December 2023, plans were confirmed to introduce its own CBAM from 2027. The government published the latest proposed draft in March this year, with a consultation on this ending in June.

The UK’s Carbon Border Adjustment Mechanism is designed to perform the same functions as the European one and is largely similar to it. However, it has a few differences, the researchers note. For example, the scheme will cover ceramics and glass, but not imported electricity. The UK CBAM will come into effect one year after the European one is fully implemented, in 2027, with no transition period.

The British government has announced that it will apply its CBAM to all countries equally, regardless of their development status – an approach shared by the EU. This position is particularly controversial given that many poorer nations have relatively low domestic emissions, face significant challenges in accurately measuring emissions from their industry and associated supply chains, and are less able to implement decarbonization strategies.

The UK, the IISD experts note, should carefully consider the concerns raised by governments and industries in exporting countries to ensure that its mechanism is not seen as a form of environmental colonialism or mere protectionism, and does not undermine the country’s role in international climate negotiations.

The researchers also outlined the implications of the mechanism’s introduction for British industry. The government justified the introduction of CBAM as a means of giving confidence to investors in heavy industry. Some in the financial sector see it as an important development linked to the phasing out of free allowances under the ETS – a move deemed necessary to accelerate decarbonization in the country, among other things.

The issue also arose in the stakeholder dialogues that the CBAM’s own CBAM will not protect the economic competitiveness of UK exports in markets with weaker climate policies. As free allowances are phased out, policymakers will need to think carefully about how to address this issue. Unions, for their part, have long been concerned about carbon leakage and potential job losses.

The discussion also included the view that the UK CBAM should mirror the EU’s monitoring and reporting system as closely as possible. There are concerns that exporters will be forced to follow a different carbon reporting system and be less inclined to sell to the UK. This could lead to less competition and higher prices.

As GMK Center reportged earlier, the extension of CBAM to developed country markets could lead to a loss of export competitiveness for some Brazilian industrial sectors, according to an IISD study.