UK Consults on Rules to Curb ‘Carbon Leakage’

The UK government has opened a consultation on the design and implementation of a new mechanism for taxing imports of certain goods based on the greenhouse gas emissions generated during their production.

The consultation, which runs until 13 June 2024, is the first step towards the introduction of a new ‘carbon border adjustment mechanism’ (CBAM) in the UK. The government had previously pledged to introduce such a mechanism and for it to take effect from 1 January 2027.

Trade and subsidy control expert Dr Totis Kotsonis, of law firm Pinsent Masons, said that the purpose of the CBAM is to tackle so-called ‘carbon leakage’, ensuring that goods imported from countries that apply either low or no carbon prices do not gain an unfair competitive advantage.

Goods that might be affected include aluminium bars, various forms of ceramic bricks, roof tiles, and pipes, nitrates of potassium, glass wool and railway tracks. Scrap aluminium, glass, iron or steel goods that are imported to the UK would not be in scope of the regime.

Kotsonis said that under the government’s plans, the point at which tax liability on goods would arise would be in one of two scenarios: if goods are subject to customs controls, the tax point would be the date on which the goods are released into free circulation; if there are no customs controls, it would be the date on which the CBAM goods first enter the UK.

A tax liability would arise in relation to CBAM goods imported into the UK even if they are released into free circulation in non-CBAM goods form after processing. In those circumstances, liability would be based on the CBAM good before it was processed.

Kotsonis commented: “The UK government’s decision to seek to implement a UK CBAM will be welcomed by domestic producers who potentially face unfair competition from cheaper imports from countries that do not have in place equally rigorous carbon mitigation measures.

“In fact, concerns over unfair foreign competition were magnified further as a result of the introduction of the EU CBAM. This has given rise to the risk of cheaper products that would have otherwise found their way into the EU, being diverted into the UK market.”

“The UK government’s decision to seek to implement a UK CBAM will be welcomed by domestic producers who potentially face unfair competition from cheaper imports from countries that do not have in place equally rigorous carbon mitigation measures."

Dr Totis Kotsonis, Trade & Subsidy Control Expert, Pinsent Masons