In a sign that the EU and Britain are warming relations, they are increasing their coordination of climate change efforts and responding to the massive US green subsidy program.
Rishi Sunak, the UK’s prime minister, stated this week that Britain could coordinate moves to establish a new carbon tax at its borders. This would impose a levy on carbon-intensive imported goods entering Europe.
The government will open a consultation Thursday on whether to implement the UK’s “carbon border adjustment mechanism” in a wider net zero strategy.
Grant Shapps (energy secretary) said that the consultation would address future “carbon leakage”, when businesses shift production to countries with weaker climate regulations in order to avoid paying a carbon tax.
Sunak said this week that the government was moving forward on the so-called “CBAM”, stating that the idea was “reasonable” and “sensible”. He also revealed that he had previously discussed the matter with Olaf Scholz, the German leader.
Sunak stated to the Commons liaison that there may be opportunities for cooperation with the EU, as they had been in talks about their emission trading schemes.
Officials from Britain stated that the goal was to collaborate with countries like-minded and that the UK, EU and other member states were considering linking their carbon pricing systems. One said, “It makes sense.”
On Wednesday, Kemi Badenoch (UK trade secretary) met with Valdis Dombrovskis (EU trade commissioner) to discuss a coordinated response to the controversial Inflation Reduction Act by Joe Biden.
Allies of Badenoch said Biden’s $369bn subvention program presented similar challenges to the EU and UK along with other allies like Australia and Japan.
On Thursday, Jeremy Hunt, the UK’s chancellor, told MPs that he would publish a complete response to the IRA later this year. He said that while this doesn’t necessarily mean subsidy for matching, it does mean making sure the overall package remains attractive, which will encourage people to choose to invest in the UK.
After the end of the corrosive row last month over post Brexit trading relations in Northern Ireland, discussions between London and Brussels are now focusing on climate-related issues.
Although the Treasury suggested the possibility of a CBAM during its net zero review in Oct 2021, it cautioned that implementation could prove difficult.
CBAM in the EU is near approval. It will begin levying fees in 2026. However, it has already been controversial. China requested that discussions be held at the World Trade Organization because it could discriminate.
This tax aims to equalize the playing field between domestic companies that are regulated under the EU’s emissions trading scheme. It imposes a levy upon imports of carbon-intensive products.
Given the similarities between the UK and EU emissions trading systems, it is possible to formalize the linking of both.
Sarah Williams, an environmental organization from the Green Alliance, stated that linking the UK to the EU “carbon pricing system makes a lot sense” and that the Northern Ireland agreement opened up “the possibility of building a stronger co-operative relationship with EU”.
Jonny Peters is a senior policy advisor at E3G on climate change. He said that a UK CBAM would likely look similar to the EU’s because both would be covered under WTO rules and that the UK and EU emissions trading system were “pretty close”.