Cheers or tears? New import levy on carbon-intensive products in the UK

As the UK advances towards the target of achieving ‘net zero’ by 2050, the government has shown keen awareness of the impact of imported carbon-intensive products on the nation's overall carbon footprint and its local industry.

The story so far

To date the UK government has successfully: 

• pioneered the introduction of net zero laws; 
• encouraged significantly reduced carbon emissions from electricity generation through the replacement of fossil fuels with renewable energy; and
• implemented a carbon pricing system to curb greenhouse gas emissions. 

It is now tackling carbon leakages resulting from its de-carbonisation drive, through the introduction of a carbon border adjustment mechanism (CBAM). The UK CBAM is scheduled to be implemented by 2027 and will impose a levy on imports originating from countries with lower or non-existent carbon pricing. Like the similar measure being introduced by the European Union, the UK CBAM is primarily intended to safeguard local industry, discourage the shifting of carbon emissions to other countries, and promote a comprehensive reduction in global carbon emissions.

Plot twists?

The CBAM could prove effective in safeguarding the interests of UK manufacturers of carbon intensive products that have invested in, or are intending to invest in, carbon reduction technology to reduce the UK’s overall carbon footprint, but face higher costs when compared against lower cost similar imported products from countries without comparable carbon pricing. However, there is a chance that it might also push some trade to countries with a lighter carbon rulebook. The impact of the CBAM and the way in which it is implemented may therefore prove to be like a high-stakes game of chess, where UK-based traders might feel a competitive pinch in the global market.

Although the 198 countries and other parties attending the COP28 climate change summit agreed to progressively transition from fossil energy by 2050 and improve global renewable energy capacity by 2030, more carbon emitters need to embrace the challenge of addressing carbon leakage. This is necessary in order to achieve the 2050 net zero goal and for countries like the UK to yield optimal benefits from their net zero policies without negatively affecting their international trade presence.

Eventually, as countries begin to take the necessary strides to tackle carbon leakages and level up carbon pricing internationally, global traders of carbon-intensive products will need to explore innovative avenues for cost savings and carbon reduction. In short, shifting production offshore may soon become an impractical option, thereby requiring industry to embrace sustainable and climate-friendly practices.

Take advice

In order to make accurate and compliant import declarations in the future, businesses need to act now to fully establish their carbon position. Affected businesses are advised to take professional advice to help ensure the accurate completion of their customs declarations – effectively tax returns – and to ensure customs compliance in world increasingly focusing on environmental taxes. 

For more information, please get in touch with Olamide Osifeso, Jason Wellden, or your usual RSM contact.