UK’s Johnson examining cross-border carbon tax option

British Prime Minister Boris Johnson is considering the possibility to tax imports for carbon, according to reports published by several media outlets. Such a move would shield the competitiveness of the country’s industry and help prevent it from moving abroad.

As the European Union is working on the introduction of a carbon border adjustment mechanism (CBAM), effectively a tax on carbon dioxide for foreign goods and electricity, the United Kingdom is analyzing the potential effects of its own potential CO2 tax, news outlets learned.

The EU intends to roll out a CO2 border tax and the US could do the same

Several media reports indicated Prime Minister Boris Johnson is mulling the possibility, even though he is said to have rejected the idea in February due to the impact on food prices. As both the EU and the UK have carbon pricing and trading schemes, their industries are less competitive against imports from companies that don’t have to buy emission allowances.

CO2 taxes would halt carbon leakage

A cross-border carbon tax would also prevent so-called carbon leakage or the departure of production capacities to countries with less strict rules. The government in London has suggested that it would use its current presidency of the Group of Seven – G7 to ask the other members to address the matter jointly.

Cross-border carbon levies could hamper free trade

The Telegraph wrote the plan refers initially to steelmakers and other heavy industry while that agriculture could be added at a later stage. Critics point to the protectionist element of such a system as some of the CO2 emission allowances are still received for free.

HuffPost quoted unnamed insiders saying Johnson is “very open” to the concept.

Chance for diplomacy

The Prime Minister’s Office revealed the Department for Business, Energy and Industrial Strategy is “looking into” the issue and that it is “focused on” it. The department itself said it wants to work with trading partners and mitigate the climate change impact through diplomacy and to harmonize rates.

The UK and the EU are also developing plans to expand their domestic emissions trading systems and the United States hinted at the possibility of rolling out a cross-border CO2 tax.