UK ANNOUNCES PLANS FOR A CARBON BORDER ADJUSTMENT MECHANISM (CBAM) BY 2027
The UK Chancellor has announced that he intends to implement a new import carbon pricing mechanism by 2027. The proposed levy would affect at least the Iron, Steel, Ceramics, Aluminium and Cement sectors. It may also include Fertilisers, but in contrast to the EU’s CBAM scheme (which is to be fully operational by 2026) there appears to be no proposal to include Electricity in the UK’s scheme but Glass manufacturing may also be in scope for the UK.
The design and delivery of the UK’s 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.
The UK CBAM is planned to work alongside the UK Emissions Trading Scheme (ETS) to mitigate the risk of carbon leakage. Separately, the UK’s 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 is also reviewing whether “free allocation” should be adjusted to reflect any changes to carbon leakage risk for given sectors.
A UK CBAM will require legislation to be brought before Parliament. This is unlikely to happen in 2024 which marks the end of the currently Parliament, and therefore will be dependent on the outcome of the likely UK election in late 2024.