The UK government has announced plans to impose tariffs on imports of carbon-intensive products like fertilizer and cement from countries with lower carbon pricing than the UK. Set to take effect in 2027, this initiative, known as the carbon border adjustment mechanism (CBAM), is designed to mitigate the risk of ‘carbon leakage.’ This phenomenon occurs when production and its associated emissions shift to nations with less rigorous climate policies. The European Union is also preparing to introduce its own CBAM in 2026, having already started a monitoring phase. Consequently, UK companies exporting goods like hydrogen, cement, and steel to the EU will be required to provide detailed emissions data for their products to EU clients.
According to the UK Treasury, the one-year delay in the implementation of the UK’s CBAM relative to the EU’s is not expected to result in a significant redirection of carbon-intensive products to the UK. However, the risk of carbon leakage is projected to increase from 2028, by which time the UK’s system should be fully operational. The Chemical Industries Association has expressed approval of the UK’s decision but noted disappointment in the UK’s delayed response compared to the EU and the lack of detailed information. Accompanying the CBAM announcement are changes to the UK’s Emissions Trading Scheme (ETS), effective this month. These changes include lowering the emissions cap, aligning it with the targets required to achieve net zero. The number of allowances available for purchase by companies will decrease by 12% this year and 45% by 2027 compared to 2023 levels.
The ETS’s duration has also been extended from 2030 to 2050. Starting in 2025, emissions from carbon dioxide venting by the oil and gas exploration and drilling sectors will be included in the ETS, expected to total around 400,000 tonnes. Plans to include methane and nitrogen oxide emissions are underway, although a specific timeline has not been provided. The government is also reviewing its policy on allocating free allowances to industries as a strategy to encourage further decarbonization. This review aims to align free allocations with actual industrial activity, potentially preventing situations where closed facilities continue to receive and sell allowances. An example of this occurred in 2022 when CF Fertilisers received over 400,000 allowances for a plant in Cheshire that had been closed. There has been a call from industries for the UK and EU CBAMs to closely align and for a linkage between the two emissions trading schemes.
The UK government has expressed openness to this possibility. Despite a recent decrease in prices on both the EU and UK ETS, with the UK price trading about 30% lower, UK companies might face a carbon tax for exports to the EU if this price difference persists. Linking the two systems could reduce the reporting burden for companies. Alan Winters, co-director of the Centre for Inclusive Trade Policy at the University of Sussex, UK, remarks that while companies already collect emissions data, reporting emissions by product rather than at the company level could be more challenging, particularly for smaller exporters.
Stay current with supply chain report news at The Supply Chain Report. For international trade tools, see ADAMftd.com.
#CarbonBorderAdjustmentMechanism #CBAM #UKGovernment #EUETS #CarbonLeakage #NetZero #EmissionsTradingScheme #ChemicalIndustriesAssociation #Fertilizer #Cement #Hydrogen #Steel #Decarbonization #ClimatePolicy #SustainableTrade #CarbonPricing #EmissionsData
The UK government has announced plans to impose tariffs on imports of carbon-intensive products like fertilizer and cement from countries with lower carbon pricing than the UK. Set to take effect in 2027, this initiative, known as the carbon border adjustment mechanism (CBAM), is designed to mitigate the risk of ‘carbon leakage.’ This phenomenon occurs when production and its associated emissions shift to nations with less rigorous climate policies. The European Union is also preparing to introduce its own CBAM in 2026, having already started a monitoring phase. Consequently, UK companies exporting goods like hydrogen, cement, and steel to the EU will be required to provide detailed emissions data for their products to EU clients.
According to the UK Treasury, the one-year delay in the implementation of the UK’s CBAM relative to the EU’s is not expected to result in a significant redirection of carbon-intensive products to the UK. However, the risk of carbon leakage is projected to increase from 2028, by which time the UK’s system should be fully operational. The Chemical Industries Association has expressed approval of the UK’s decision but noted disappointment in the UK’s delayed response compared to the EU and the lack of detailed information. Accompanying the CBAM announcement are changes to the UK’s Emissions Trading Scheme (ETS), effective this month. These changes include lowering the emissions cap, aligning it with the targets required to achieve net zero. The number of allowances available for purchase by companies will decrease by 12% this year and 45% by 2027 compared to 2023 levels.
The ETS’s duration has also been extended from 2030 to 2050. Starting in 2025, emissions from carbon dioxide venting by the oil and gas exploration and drilling sectors will be included in the ETS, expected to total around 400,000 tonnes. Plans to include methane and nitrogen oxide emissions are underway, although a specific timeline has not been provided. The government is also reviewing its policy on allocating free allowances to industries as a strategy to encourage further decarbonization. This review aims to align free allocations with actual industrial activity, potentially preventing situations where closed facilities continue to receive and sell allowances. An example of this occurred in 2022 when CF Fertilisers received over 400,000 allowances for a plant in Cheshire that had been closed. There has been a call from industries for the UK and EU CBAMs to closely align and for a linkage between the two emissions trading schemes.
The UK government has expressed openness to this possibility. Despite a recent decrease in prices on both the EU and UK ETS, with the UK price trading about 30% lower, UK companies might face a carbon tax for exports to the EU if this price difference persists. Linking the two systems could reduce the reporting burden for companies. Alan Winters, co-director of the Centre for Inclusive Trade Policy at the University of Sussex, UK, remarks that while companies already collect emissions data, reporting emissions by product rather than at the company level could be more challenging, particularly for smaller exporters.
Stay current with supply chain report news at The Supply Chain Report. For international trade tools, see ADAMftd.com.
#CarbonBorderAdjustmentMechanism #CBAM #UKGovernment #EUETS #CarbonLeakage #NetZero #EmissionsTradingScheme #ChemicalIndustriesAssociation #Fertilizer #Cement #Hydrogen #Steel #Decarbonization #ClimatePolicy #SustainableTrade #CarbonPricing #EmissionsData
