UK Set to Launch Carbon Levy on Imports in 2027 to Combat Global Emissions

Britain is poised to take a significant step towards its decarbonization goals with the introduction of a new carbon levy on imported goods by 2027. This initiative, announced by the UK Treasury, is designed to level the competitive playing field for British companies and foster a global reduction in carbon emissions. The carbon levy, termed the Carbon Border Adjustment Mechanism (CBAM), will apply to products imported from countries with lower or no carbon pricing, including carbon-intensive goods in sectors such as iron, steel, aluminum, fertilizers, hydrogen, ceramics, glass, and cement​​​​​​.

The charge will be determined based on the amount of carbon emitted during the production of the imported good and the discrepancy between the carbon price in the country of origin and the carbon price faced by UK producers. Finance Minister Jeremy Hunt emphasized that this levy aims to ensure that carbon-intensive products from overseas, like steel and ceramics, are subject to a carbon price comparable to those produced in the UK. This alignment is expected to drive reductions in global emissions and give UK industries the confidence to invest in decarbonization as the world moves towards net zero​​​​​​.

This move is also a response to the increasing concern over ‘carbon leakage,’ where emissions are effectively transferred to other countries with lower or no carbon prices. By implementing CBAM, the UK government aims to prevent emissions from being displaced to other countries, thus making a more significant impact on global emission reduction. The CBAM will function in conjunction with the UK Emissions Trading Scheme​​​​​​.

This initiative aligns with similar steps taken by the European Union, which launched the first phase of a system to impose CO2 emissions tariffs on imported steel, cement, and other goods in September, becoming the first in the world to do so. However, the EU will not start collecting any CO2 emission charges at the border until 2026. This move by the EU has raised concerns among trading partners, with China’s top climate envoy urging countries to avoid unilateral measures like the EU levy​​​​​​.

In preparation for the implementation of this levy, the UK Treasury will consult in 2024 on the levy’s design, delivery, and the specific list of goods and products to be included. The consultation will also seek input from the power, aviation, and industrial sectors on the UK Emissions Trading Scheme to further mitigate the risk of carbon leakage. Philip Dunne, MP and chairman of the environmental audit committee, has welcomed these measures as essential steps towards addressing the 43% of the UK’s consumption emissions that are attributed to imports​​​​.