U.K. Considers Carbon Border Tax to Protect Domestic Industry

The U.K. is considering a carbon border tax to protect domestic industries and manufacturers from becoming uncompetitive due to higher costs triggered by policies to tackle climate change.

A green levy is “being looked at” because efforts to reduce carbon emissions risk driving heavy industry -- such as steel and aluminium production -- offshore, Martin Callanan, U.K. minister for climate change, told Bloomberg TV Friday. “There is a big danger that we make ourselves uncompetitive.”

U.K. Considers Carbon Border Tax to Protect Domestic Industry

The theory behind a carbon border tax is that it could be applied to imported goods produced in countries with weaker climate laws. The aim is to protect industries in countries that have higher carbon prices, while prodding other regions to move ahead with similar climate action.

The European Union is planning to introduce a carbon price on imports of certain emissions-intensive goods from 2023 at the earliest, to try to ensure a level playing field for companies. It’s also under consideration in the U.S., where Joe Biden backed the idea in his presidential campaign.

Considerations in the U.K. come as Prime Minister Boris Johnson prepares to host the Group of Seven summit next month and the next round of United Nations climate change talks in November.

Britain has pledged to cut emissions by 78% by 2035 on the way to achieving so-called net zero by the middle of the century, part of a push to show global leadership on climate change as the U.K. repositions itself outside the EU.

The nation’s own carbon market started trading on May 20 and prices for permits are already more expensive than the equivalent in Europe, a difference that traders say is down to a more ambitious climate policy in the U.K.

A carbon border tax could help address tensions created by increasing the costs associated with pollution when other nations are doing less.

©2021 Bloomberg L.P.

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