Carbon Emissions: Taxation

Question

The purpose of the UK Carbon Border Adjustment Mechanism (CBAM) is to mitigate the risk of carbon leakage; the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation. This is necessary to avoid a situation where the UK’s decarbonisation efforts simply displace emissions overseas, rather than leading to a true reduction in global emissions. The CBAM will ensure that imported goods from relevant sectors pay a comparable carbon price to domestic goods.

Alongside taking domestic action, the UK and many others around the world are working to reduce that risk by fostering international cooperation to address global emissions from some of the hardest to abate sectors.

The UK is taking practical action through several global initiatives. This includes:

• The inclusive and cooperative international Climate Club, which launched at COP28, whose collective membership represents over 60% of global iron, steel and cement exports.
• Engaging closely with the OECD on its work through the Inclusive Forum on Carbon Mitigation Approaches (IFCMA) to consider the effectiveness of carbon intensity metric methodologies and how governments can use this effectively in policy making.
• Providing £130m of UK International Climate Finance to support more ambitious carbon pricing, and to enhance the integrity of the international carbon market, using new and innovative approaches that reduce emissions and leverage investment.
• Supporting several initiatives to increase adoption of carbon pricing including the Partnership for Market Implementation fund; International Carbon Action Partnership (ICAP) and Canada’s Global Carbon Pricing Challenge.
• Fostering global cooperation on industrial decarbonisation through the Industrial Deep Decarbonisation Initiative (IDDI) and the Breakthrough Agenda.