Britain has launched a consultation on how it should apply a new carbon import levy on some products from 2027 to help to protect businesses against cheaper imports from countries with less strict climate policies.
Britain, which has a target of reaching net zero emissions by 2050, launched an emissions trading system (ETS) in 2021 to charge power plants, factories and airlines for each tonne of carbon dioxide they emit as part of efforts to meet that goal.
Carbon Border Adjustment Mechanism
The planned carbon border adjustment mechanism (CBAM) will apply to imports of carbon-intensive products in the iron and steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement sectors. In documents published on Thursday, the government proposed seven rates of taxes for each sector, with the sectors to be kept under review.
The methodology used to set fees will depend on the amount of carbon emitted in the production of the imported good and any gap between the carbon price applied in the country of origin and the carbon price faced by UK producers. Other regions and countries, such as the European Union and China, operate such systems, but prices within the schemes vary and many countries have no carbon pricing at all.
Reference Price
Britain’s benchmark ETS carbon contract currently trades around 36 pounds ($46) per metric ton, while contracts in China’s ETS trade around 84 yuan ($11.67) a ton.
Britain proposed using the average auction price of permits in its ETS over the preceding quarter as a reference price for the levy. “Using a quarterly reference would allow for the UK CBAM rate to track the changes in the UK ETS price throughout the year, whilst balancing the need to give importers certainty on the price they will pay,” the document said.
First CBAM Accounting Period
It proposes the first CBAM accounting period should run from January 1st 2027 to December 31st 2027, and that from 2028 accounting periods should become quarterly. The consultation will be open until June 13th and seeks views specifically from tax advisers, professional bodies, importers and businesses from Britain and overseas, it said.
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