The UK Government should develop plans for a carbon border adjustment mechanism (CBAM) to address carbon leakage as the date to achieve net zero emissions gets closer.

Publishing its report examining the issue, MPs argue that a CBAM could drive green policies in industries across the UK economy as the practice of ‘offshoring’ the UK’s emissions is addressed. Putting a price on imported carbon can incentivise sectors to move away from carbon intensive practices and promote behaviour change to more low-carbon products.

However, the Committee also heard concerns that carbon pricing could lead to producers increasing the costs of high carbon products on to the consumer, which could exacerbate the current cost of living crisis.

It is necessary, the Committee argues, for the CBAM to incentivise the development of more low carbon products to ensure people are not adversely affected. The Government should also improve awareness raising around carbon pricing and a CBAM, if introduced, to demystify the policy for consumers.

The Committee recognises that sectors that are hard to decarbonise will need greater support. It is therefore integral that when designing a CBAM, that the Government consults sectors across the economy and SMEs to ensure the approach works: a one-size fits all approach is unlikely to suffice. The Committee is of the view that a CBAM alone will not deliver the desired results: complementary mechanisms such as standards, regulation and support for low-carbon technologies are also needed.

The Committee is aware that a unilateral CBAM is unlikely to drive significant change to reduce global emissions, with a multilateral CBAM likely to be the preferred and more effective option.

However, work on a unilateral CBAM can be championed much sooner by the Government, with a view to opening discussions on a multilateral CBAM in the future. The UK is in a strong position to lead efforts on CBAM development internationally, while holding the presidency of COP and engaging in trade discussions with many countries around the world as a strong trading partner.

Rt Hon Philip Dunne MP, Environmental Audit Committee Chairman said “Our Committee is clear that the pros of a CBAM outweigh the cons. For too long the emissions from our consumption have effectively been ‘offshored’, leaving the problem as out of sight and out of mind. But we must all take greater responsibility for our consumption, and the practices that our businesses and organisations adopt.”