(Bloomberg) -- The UK will introduce a carbon border tax from 2027 for imports of emissions-intensive goods from countries deemed to have weaker climate regimes, following a similar move by the European Union.
Imports of iron, steel, aluminum, ceramics and cement would be subject to the new levy, the Treasury said in a statement on Monday. The tax applied would depend on the amount of carbon emitted in the production of the imported good and the gap between the carbon price in the UK and the country of origin.
This levy will make sure carbon-intensive products from overseas — like steel and ceramics — face a comparable carbon price to those produced in the UK, so that our decarbonization efforts translate into reductions in global emissions,” Chancellor of the Exchequer Jeremy Hunt said in the statement. “This should give UK industry the confidence to invest in decarbonization as the world transitions to net zero.”
The aim of the policy is to ensure companies forced to comply with strict climate laws in Britain don't face unfair competition from producers in regions with lower costs. The move may help limit the UK's exposure to EU's recently announced carbon border tax when selling its goods on the continent after prices in Britain dropped dramatically.
UK carbon allowances have dropped 54% this year and are trading at £34 (€39.50) a ton, near a record low, while the European equivalent price is €66.90 a ton, data from ICE show.
The UK is consulting on a new Supply Adjustment Mechanism — that removes allowances from the market each year. The government is also seeking market views on how to adjust the number of free allowances handed out once the carbon border levy kicks in and expanding the emissions trading system to other sectors.
The consultation documents stop short of proposing linking the UK's system with the EU to try to bridge the price gap that has emerged. The UK's weak and volatile carbon price is threatening to undermine investment in clean energy and cost the treasury billions in lost revenue, according to industry lobby group EnergyUK.
The Treasury said the design of its carbon border tax would be subject to further consultation next year, including the list of products in scope.
Read More: How Europe Will Tax C02 Emissions Beyond Its Borders: QuickTake
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