UK set to launch carbon levy on imported goods in 2027

Britain is set to charge a carbon levy on imported goods under plans announced by the Treasury to help prevent UK firms being undercut by overseas manufacturers.

The Treasury said the proposed new tax will come into effect in 2027, ensuring that imports of products such as iron, steel, aluminium, ceramics and cement from overseas will face a comparable so-called carbon price to those manufactured in Britain.

A carbon price is used by governments to help reduce emissions by charging a fee on carbon pollution to encourage industries to cut their greenhouse gases.

There have been mounting calls for the UK Government to tackle “carbon leakage” over concerns that UK companies are being undercut by cheaper, but higher carbon, imports from countries where they charge a lower or no carbon price.

The Treasury said the plans will help level the playing field and boost UK industry investment in cutting greenhouse gas emissions.

Chancellor 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.

“This should give UK industry the confidence to invest in decarbonisation as the world transitions to net zero.”

The Treasury said charges under the planned new carbon border adjustment mechanism (CBAM) would depend on the amount of carbon being emitted in the manufacture of the imported product, as well as the gap between the carbon price applied in the country where it is produced and that paid by equivalent UK manufacturers.

It follows a consultation on carbon leakage solutions, which found that 85% of those who responded believed the issue is a current or future risk to their decarbonisation efforts, according to the Treasury.

There are fears that firms’ efforts to cut greenhouse gases on these shores are not being matched overseas, meaning that emissions are just being displaced to other countries without ambitious net zero targets, leading to little global benefit.

The Treasury will now consult on the levy plans in 2024, including its design and delivery, as well as the exact list of goods and products that will be covered.

It is also asking for views within the power, aviation and industrial sectors on the UK Emissions Trading Scheme to further help cut the risk of carbon leakage.

Philip Dunne, MP and chairman of the environmental audit committee, welcomed the “tangible steps” towards the launch of a UK import carbon levy.

He said: “Imports to the UK make up 43% of the UK’s consumption emissions.

“These must be tackled, or the UK’s efforts to decarbonise will be undercut.

“Applying an appropriate carbon price at the border will go a long way towards closing carbon loopholes.”