UK to establish carbon tax on imports from 2027

The UK government has announced it will begin implementing a carbon tax on imports in five years.

The new carbon border adjustment mechanism (CBAM) aims to support the country’s decarbonisation plans, avoid ‘carbon leakage’ – the process by which production and emissions are shifted to countries with less strict emissions policies – and protect domestic businesses against these cheaper imports.

It is set to target products in key sectors including iron, steel, aluminium, fertiliser, hydrogen, glass, ceramics and cement. 

The amount charged will depend on the amount of carbon emitted in the production of the imported good. It will also seek to cover any gap between the carbon price applied in the country of origin and the carbon price faced by UK producers.

“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,” said Chancellor of the Exchequer Jeremy Hunt.

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

The UK first launched an emissions trading system (ETS) in 2021. Under this system, power plants, factories and airlines face charges for each tonne of carbon dioxide they emit. Regions such as the EU and China operate similar systems, but prices vary widely from country to country.  

Britain’s benchmark ETS carbon contract currently trades around 36.60 pounds ($46.34) per metric ton, while contracts in China’s ETS trade around 71.60 yuan ($10.04) a ton.

The UK’s new tax resembles the initiative passed by the EU, which recently approved a carbon tax for imported steel, cement and other goods. It is expected to come into effect in 2026.

Britain’s steel industry has welcomed the news, saying it would help prevent a flood of high-emission products coming to the UK once the EU’s carbon measure is up and running.

“With over 90% of global steel production facing no carbon cost, it is only right that a new carbon border policy is put in place,” said Gareth Stace, director general of industry group UK Steel. “However, implementing the UK scheme one year after the EU CBAM starts is hugely concerning.”

The news comes as the government publishes its response to a consultation in which 85 per cent of respondents said that carbon leakage is a current or future risk to their decarbonisation efforts. 

The design and delivery of the CBAM will be subject to further consultation in 2024.