UK Follows European Union Lead in Proposing a Carbon Price on Imports

India and China have already objected to CBAM at the WTO


The UK government has recently opened a consultation on a range of potential policy measures, including a carbon border adjustment mechanism (CBAM) on the lines of the one proposed by the European Union to mitigate future carbon leakage risk.

Besides the proposed carbon tax on imports into the UK, which could dent India’s exports, the government is also mulling mandatory product standards.

According to the consultation documents, CBAM would introduce a carbon price on imported products. This would reflect both the carbon emitted in their production and any gap between the carbon price applied in the country of origin and the carbon price that would have been incurred had they been produced in the UK.

The sectors targeted are cement, chemicals, glass, iron and steel, non-ferrous metals, non-metallic minerals, paper and pulp, refining, fertilizer, and energy generation.

The government has invited responses from companies and representatives from industry and business, including trade associations, importers and exporters of products, small and medium-sized enterprises, supply chain businesses, software houses, customs agents and international partners, and multinational groups. The consultation closes on June 22, 2023.

Besides CBAM, a mandatory product standards (MPS) regime has been proposed setting an upper limit on the embodied emissions for individual products placed on the UK market, or produced in the UK, prohibiting products that are more emissions-intensive than a defined limit. This could apply to both domestically produced and imported products.

“Implemented together, MPS and a CBAM could create an environment with a maximum limit for the embodied carbon of certain, highly polluting products, and a carbon price incentivizing further emission reductions,” the consultation document said.

Last December, the European Parliament reached a deal to implement CBAM effective October 2023 to incentivize non-EU countries to enhance their climate goals. The regulation will initially cover iron, steel, cement, aluminum, fertilizers, and electricity. It will be extended to some downstream products such as screws and bolts and similar articles of iron or steel.

The proposed carbon tariff measures have alarmed India as they could adversely impact its exporters. India joined China in opposing the EU’s CBAM at a recent World Trade Organization’s Committee on Trade and Environment (CTE). Earlier, India’s finance minister Nirmala Sitharaman had warned Indian industry to be prepared for the impending tariff walls being considered by developed countries.

At the same WTO meeting, China suggested that members start discussions on CBAM when the CTE meets in June. “Trade policies designed to achieve environmental objectives should be consistent with the fundamental principles and basic rules of the WTO, strike a balance between environmental considerations and trade considerations, and do not constitute protectionist measures or green trade barriers,” China said.