Labour seeks closer EU relations on carbon tax

Senior Labour figures said that if they win the general elections next month, Labour would explore how to realign Britain’s carbon regime. This move would be welcomed but angered some Brexiters.

Since the Brexit in the UK, there are separate markets – each called “emissions Trading Scheme” or ETS – where large polluters like gas-fired electricity plants can trade “allowances”, which allow them to emit a specific amount of carbon dioxide.

British exporters warned they may end up paying millions more in the future due to the UK’s lower carbon price than that of the EU under their respective ETS scheme.

Separately both the UK as well as the EU plan to tax imported products such a steel in order to account for relative costs of carbon emitted while production. This is done through a “carbon-border adjustment mechanism” or CBAM.

It is to stop UK and EU manufacturers from being undercutted by global competitors who can produce their products cheaper because they don’t have to adhere to stricter local environmental regulations.

The UK’s CBAM will come into effect in 2027, a year later than the EU version. This has caused concern among the industry that the UK could become a temporary dump for goods like iron, steel and cement, as rivals try to avoid paying EU CBAM.

A representative from British industry stated that they have received private assurances recently from three shadow ministry teams that Labor will align the ETS Carbon Market and the CBAM Tax Scheme with the EU if elected.

Jonathan Reynolds, shadow secretary for business, said that the CBAM is “a very important issue” to British industry. We are very concerned about the carbon dumping that could occur before [UK tax] is implemented. He said that the party wanted to align itself on the timing between the UK and EU carbon tax regimes, but there could be practical challenges.

Labour officials said that the party is “exploring ways to align” the CBAM scheme and the ETS scheme with the EU. They added that they were still considering the tradeoffs of losing some autonomy in the UK.

According to industry figures, combining ETS would create a larger and more stable market.

Labour, which is in a strong lead before the election, has made it clear that, if elected to power, they intend to strengthen trading ties with Europe, and undo regulatory divergence created by Britain’s exit from the EU.

The party leader, Sir Keir, will not be seeking to rejoin the customs union or the single market, but instead wants to improve the current Brexit deal by negotiating new agreements regarding security, veterinary standards, and the recognition of professional qualifications.

In their post-Brexit Free Trade Agreement, the UK and EU have agreed that they will consider linking their carbon pricing schemes.

Industry experts say that the schemes are similar in general, but some differences will need to be addressed before they can be linked.

The EU, for example, already includes shipping emissions in its carbon market. It also says that at least half the proceeds from the sale should be used by the governments to finance climate and energy-related projects.

Gareth Stace warned that the current government plans could “knowingly and deliberately expose our steel industry to substantial damage at a moment when our market has already been attacked from multiple sides”.

He said that the next government would have to bring forward the border levies to 2026, and link up the UK and EU Carbon markets in order to “eliminate trade barriers between the EU steel market and the UK’s”, he continued.