How decarbonisation doesn’t have to mean deindustrialisation
A Carbon Border Adjustment Mechanism can level the playing field for our domestic industries as the UK decarbonises.
Four years ago, Britain became the first major economy to enshrine a net zero target for carbon emissions in law, setting a deadline of 2050.
This was a landmark move that has given some much-needed impetus to the drive to tackle climate change, both at home and around the world.
But as the clock counts down to 2050, it is important to consider how we get the most out of net zero – both for the British economy, and in terms of how much our net zero transition contributes to global decarbonisation.
UK net zero targets are based only on the emissions produced in the UK, not the emissions associated with goods that the UK consumes. This means that emissions generated when, for example, steel destined for the UK market is produced in India or cement is produced in Algeria and imported here, do not count as the UK’s carbon emissions.
Britain therefore has two potential ways of achieving net zero: decarbonising domestic industries to maintain a secure supply of essential products and keeping jobs in the UK; or simply closing down domestic industry in favour of imports from abroad, irrespective of the emissions associated with those imports.
It’s clear that the latter option is much worse for the British economy, and worse for the planet as a whole as other countries may be less able to decarbonise and there are additional emissions associated with transporting goods over long distances.
But there is a risk that well-meaning climate policies lead to the latter option by default. This is a process called ‘carbon leakage’ – where carbon costs paid by UK energy-intensive industries leave them at risk of being undercut by imports from countries where production is cheaper because they have weaker climate policies and lower (or no) carbon taxes.
Carbon leakage is a real threat. In 2011, imports accounted for just 13% of UK cement sales. A decade later, that figure has grown to 30%.
How can the Government put a stop to carbon leakage, while maintaining the green policies that encourage decarbonisation? How can it ensure that our net zero economy in 2050 is based on green domestic industry, rather than carbon-intensive imports with uncertain supply chains?
One major piece of the puzzle is a Carbon Border Adjustment Mechanism, or CBAM.
This common-sense measure would require importers of certain energy-intensive products, like cement, to pay the balance between UK carbon costs and whatever carbon costs were applied in the exporting country. This would level the playing field between domestic products, which are subject to the cost of the UK Emissions Trading Scheme, and imports.
The EU is already aware of the threat of carbon leakage, and has acted to bring in its own CBAM, which will start later this year as a reporting mechanism before coming fully into force in 2026, applying initially to cement, iron and steel, aluminium, fertiliser, hydrogen, and electricity.
The introduction of the EU CBAM makes a British CBAM even more of a necessity. When the EU CBAM comes into force, goods which had previously been exported to the EU will have to pay the CBAM cost, and there is a significant chance this will result in those products being diverted to the British market instead – at least until a British CBAM is applied.
The Government has recently consulted on measures to mitigate carbon leakage including introduction of a CBAM, but despite some positive noises, it has not yet committed to a CBAM. However, as 2026 draws nearer, the need for clarity and action gets greater. The Government should not delay in committing to a CBAM, and working to implement one at least as early as 2026.
Energy-intensive industries recognise that net zero is the future. The cement and lime industries both have laid out roadmaps for their net zero transitions, for example. It’s time for the Government to back them, not only by supporting and facilitating their transition, but by introducing a CBAM to level the carbon cost between domestic producers and imports while that process takes place. That’s how Britain can not just do net zero, but do net zero right.
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