Britain plans to introduce a carbon border adjustment mechanism or CBAM on 1 January 2027, and plans to create a new criminal offence to help enforce it.
It said it decided on that date while juggling the need to protect UK industry, give companies time to prepare and encourage global climate action.
CarrZee: Countries and the EU are seeking to encourage climate action by trading in a frictionless way with nations that are responding in an ambitious fashion to the climate crisis. Exporters of certain high-emission products to Britain will face additional cost at the border, if their home countries lag on nature protection. US presidential candidate Donald Trump is promising huge increases in import tariffs should he win office (but he does not emphasise the climate side, so much). Poorer countries, markedly the BRICS, have complained rich countries are using global heating as an excuse to boost protection.
UK carbon for December 2024 dropped 4.2% vs yesterday after the UK budget came out earlier today, including this response to a consultation on the CBAM … signalling lower demand for near-term carbon futures:
UK: In September 2024 the UK ETS Authority also consulted on moving the start of the second free allocation period from 2026 to 2027 and extending the current allocation period to include 2026.
A move to 2027 would enable the government to align the implementation of the Free Allocation Review with the introduction of the UK CBAM, ensuring a holistic policy approach to carbon leakage.
The UK ETS Authority will make a final decision and respond to the consultation in due course.
…
The government has decided that the UK CBAM will place a carbon price on some of the most emissions intensive industrial goods imported to the UK from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors.
More deets:
“The UK CBAM rate applied to the embodied emissions will reflect explicit carbon pricing in the UK, net of free allowances and other reductions to the carbon price paid domestically. This will ensure that imported goods are subject to a carbon price comparable to that incurred by UK production. The overall UK CBAM liability will account for explicit carbon prices applicable in other jurisdictions to ensure the measure focuses on mitigating the risk of carbon leakage driven by the differentials in carbon pricing between jurisdictions.
“The UK CBAM will be compliant with the UK’s international obligations and our commitment to free and open trade. The government is committed to understanding the impacts of a UK CBAM on trade partners and will continue to work internationally on broader carbon leakage mitigations alongside the UK CBAM.”
Because some countries use carbon pricing and others have other ways to encourage climate protection, this bit is important:
“The government notes the uncertainty and concern around the recognition of overseas carbon prices. Other carbon pricing schemes raised by respondents have been considered, for example implicit carbon pricing, but these policies do not place a price/tCO2e directly on greenhouse gas emissions and there are challenges in converting such prices into a monetary amount. This supports the principle of pricing emissions in the same way as domestic emissions, where the UK carbon price is paid on the emissions of production regardless of the wider regulatory or non-pricing carbon reduction measure to which UK producers are also subject. Therefore, the government confirms that explicit prices only will be recognised. Further detail and guidance will be published in advance of commencement of the UK CBAM.”
CarrZee: In other words, countries who have similar carbon budgets and markets as the UK will find it easier to trade with the country. This will encourage a global carbon price, potentially.
Enforcement
The government will use existing HMRC (His Majesty’s Revenue & Customs) powers and penalties, including a general regulatory penalty for offences that are specific to the UK CBAM. In addition, the government will seek to align with the VAT penalty points system as far as possible for late submission of CBAM returns and late payment.
“The government also notes that it is already an offence to mis-describe imported goods for customs purposes which can attract a range of sanctions and penalties. The risk of mis-description will continue to be monitored closely when the UK CBAM is introduced.
The government will introduce a criminal offence for fraudulent evasion of the UK CBAM. As set out in the consultation, these powers and sanctions aim to promote compliance and reassure businesses that do comply that they will not be disadvantaged.”
Not included yet
Products from the glass and ceramic sectors that also give rise to a risk of carbon leakage will be considered for future inclusion but will not be in scope of the UK CBAM from 2027.
The glass and ceramics sectors meet the three criteria for CBAM scope outlined above and were included in the original CBAM announcement in December 2023.
Based on further consideration of the available data and evidence, these sectors are, on average, less emissions intensive than the other sectors within the scope of the UK CBAM, and therefore relatively less exposed to carbon leakage risk.
As well as this, the sectors have raised feasibility concerns surrounding glass and ceramics products in response to the consultation.
The government will continue to work with industry to address feasibility concerns raised before considering their potential inclusion at a later date
Next Steps
5.1 The government is very grateful for the detailed responses to the consultation as well as for the extensive and constructive engagement during the consultation period. HMRC and HMT will continue to engage with key stakeholders that represent the sectors and industries most affected by the UK CBAM through the establishment of a CBAM industry working group. The group will be set up in the near future.
5.2 As well as engaging with UK industry, the government will also introduce a UK CBAM international group to engage with other governments whose exporters have a keen interest in the functioning of the UK CBAM.
5.3 The UK CBAM will require both primary and secondary legislation. HMRC intend to publish all the legislation in draft ahead of introducing it before Parliament. This will allow interested stakeholders to review the legislation and ensure it meets the policy intent.
5.4 HMRC will also develop a comprehensive communications package and detailed guidance, which the government recognises is essential for liable persons to comply with their obligations as well as for overseas operators and verifiers to support the liable person in meeting these new requirements.
5.5 As work on the implementation of the tax proceeds, the government will continue to keep all areas of the UK CBAM design and implementation under review and would welcome continued engagement from all interested stakeholders.
See product codes at the end of this:
WordPress AI