UK Follows European Union in Proposing a Carbon Price on Imports

The UK government is consulting on a range of potential policy measures, including a carbon border adjustment mechanism (CBAM) similar to the ones proposed by the European Union to mitigate future carbon leakage risk.

Besides the proposed carbon tax on imports into the UK, which could dent South Africa’s exports, the UK government is also considering mandatory product standards.

According to the consultation documents, CBAM would introduce a carbon price on imported products. This would reflect both the carbon emitted in their production and any gap between the carbon price applied in the country of origin and the carbon price that would have been incurred had they been produced in the UK.

Iron and steel and non-ferrous metals sector are amongst the sectors that are being targeted. Submission of responses by companies and representatives from industry and business, including exporters of products, international partners, and multinational groups closes on Monday, June 22, 2023.

Besides CBAM, a mandatory product standards (MPS) regime has been proposed setting an upper limit on the embodied emissions for individual products placed on the UK market, or produced in the UK, prohibiting products that are more emissions-intensive than a defined limit. This could apply to both domestically produced and imported products.

This shows a growing move toward trade policies designed to achieve environmental objectives. However these measures should be consistent with the fundamental principles and basic rules of the WTO, strike a balance between environmental considerations and trade considerations, and avoid protectionist measures or green trade barriers that are distort the playing field.