Aligning the UK’s climate, trade and development policies: The case of the UK Carbon Border Adjustment Mechanism (CBAM)
Companies in the UK and elsewhere argue that, as the UK introduces new climate regulations, production could move to other countries with less stringent rules, undermining climate action. There is little evidence that this is happening in practice, but companies argue this is because they have been shielded by generous allowances under the UK’s Emissions Trading Scheme. As these allowances are phased out, industry is calling for a Carbon Border Adjustment Mechanism (CBAM) to ensure imported goods pay the same carbon costs as those produced domestically.
The European Union is already implementing this mechanism, and the United Kingdom is considering introducing its own version by 2026. However, concerns have been raised by countries in the Global South, as well as the United Nations, that without careful design, a CBAM could undermine developing country economies. This could cause the most vulnerable communities around the world to foot the bill for climate change, a problem they did very little to create.
Our new report, in collaboration with Trade Justice Movement, outlines exactly what a CBAM is and how it might work. It then carefully examines its potential risks, including challenges in assessing carbon leakage. Finally, it presents viable options for the UK to strike a balance between its climate, trade, and development goals. It ultimately calls for the UK to ensure its commitment to the Paris Agreement principle of Common But Differentiated Responsibilities is at the heart of its trade and climate measures.
Key recommendations for the UK Government emerge from our analysis:
Exempt countries in the Global South from any future UK CBAM, or provide lengthy transition periods;
Designate the revenues generated from any future UK CBAM to support a green transition in the Global South;
Keep climate finance promises to support the Global South’s efforts in mitigation, adaptation, and loss and damage;
Ensure a supportive policy framework for the transfer of green technologies.