Open Consultation Addressing Carbon Leakage Risk to Support Decarbonisation

The UK government is committed to achieving net zero emissions by 2050. To do this, it will need to make significant changes to the way it produces and consumes energy. However, these changes could lead to carbon leakage, where businesses relocate to countries with lower carbon prices. This would undermine the UK's decarbonisation efforts.

To address this risk, the UK government is conducting an open consultation on how to design a carbon border adjustment mechanism (CBAM). A CBAM would put a price on carbon emissions imported into the UK. This would help to level the playing field for UK businesses and discourage carbon leakage.

The consultation is open until 20 May 2023. The government is seeking views on a range of issues, including:

• The scope of the CBAM

• The design of the CBAM

• The implementation of the CBAM

The government will use the feedback from the consultation to develop a CBAM that is effective in addressing carbon leakage and supports the UK's decarbonisation goals.

What is carbon leakage?

Carbon leakage is the displacement of emissions from one country to another. This can happen when countries with different carbon prices compete for investment. For example, if the UK puts a price on carbon, but a neighboring country does not, businesses may relocate to the neighboring country to avoid paying the carbon price. This would undermine the UK's decarbonisation efforts.

What is a carbon border adjustment mechanism?

A carbon border adjustment mechanism (CBAM) is a policy that puts a price on carbon emissions imported into a country. This helps to level the playing field for domestic businesses and discourages carbon leakage.

There are a number of different ways to design a CBAM. One option is to put a tariff on imported goods that are produced with high levels of carbon emissions. Another option is to require importers to surrender emissions allowances for imported goods.

What are the benefits of a CBAM?

A CBAM can help to address carbon leakage and support the decarbonisation of the global economy. By putting a price on carbon emissions imported into a country, a CBAM can help to level the playing field for domestic businesses and discourage carbon leakage. This can help to ensure that all countries contribute to the global effort to reduce emissions.

What are the challenges of a CBAM?

There are a number of challenges associated with designing and implementing a CBAM. One challenge is to ensure that the CBAM is effective in addressing carbon leakage. Another challenge is to ensure that the CBAM is fair and does not place an undue burden on businesses.

The UK government is working to address these challenges. The government is consulting with businesses and other stakeholders to get their views on how to design and implement a CBAM that is effective and fair.

The future of a CBAM

A CBAM is a complex policy that requires careful design and implementation. However, it has the potential to be an effective tool for addressing carbon leakage and supporting the decarbonisation of the global economy. The UK government is committed to developing a CBAM that is effective and fair.

https://www.gov.uk/government/consultations/addressing-carbon-leakage-risk-to-support-decarbonisation?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=37e886a3-208f-4ebe-91ff-9954da6d1c07&utm_content=weekly