The UK government announced last week Monday that Carbon Border Adjustment Mechanism (CBAM) will be officially implemented in 2027, which will include aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron, and steel in the levied list for carbon emissions.
The decision aligns with the government’s response to a recent consultation on carbon leakage risk and decarbonisation measures, aiming to shield businesses from cheaper imports originating in countries with less stringent climate policies. The UK Emissions Trading Scheme (ETS) will collaborate closely with CBAM, with proposed changes to maintain effective financial incentives for decarbonisation within domestic sectors.
In 2050, the UK aims to achieve net-zero emissions, and this step will better proactively address the risk of carbon leakage, preventing emissions displacement to countries with lower or no carbon pricing. Currently, the UK’s benchmark ETS carbon contract trades at approximately £36.60 per metric ton, whilst China’s ETS contracts trade at about ¥71.60 a ton.
Importers will bear the CBAM liability, determined by the greenhouse gas emissions intensity of the imported goods and the gap between the carbon prices in the country of origin and what would have been applied in the UK. The carbon import levy is seen as a proactive measure to counterbalance the potential influx of high-emission products into the UK, especially following the launch of the European Union’s carbon measure.
Jeremy Hunt said, “This levy will make sure carbon intensive products from overseas – like steel and ceramics – face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.”
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Reference:
UK to launch carbon border adjustment mechanism from 2027. 18 December 2023. Retrieved from S&P Global:
https://www.spglobal.com/commodityinsights/
en/market-insights/latest-news/metals/121823-uk-to-launch-carbon-border-adjustment-mechanism-from-2027
UK introduces Carbon Border Adjustment Mechanism (CBAM) in 2027: key measures to consider. 21 December 2023. Retrieved from PWC:
https://news.pwc.be/uk-introduces-carbon-border-adjustment-mechanism-cbam-in-2027-key-measures-to-consider/
Comment: Carbon border adjustment mechanism. 18 December 2023. Retrieved from Committees:
https://committees.parliament.uk/committee/
62/environmental-audit-
committee/news/199084/comment-carbon-border-adjustment-mechanism/
