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The hydrogen industry has welcomed the government’s decision to introduce a Carbon Border Adjustment Mechanism (CBAM).
The Treasury has announced that the CBAM will come into effect from 2027. It will mean goods imported into the UK from countries with a lower or no carbon price will have to pay a levy, ensuring products from overseas face a comparable carbon price to those produced in the UK.
Clare Jackson, chief executive at Hydrogen UK, said the CBAM “will reduce this carbon leakage risk and ensure the UK can charge a strong price for emissions, incentivising the switch to low carbon energy such as hydrogen, while protecting UK industry from cheap imports”.
She added: “Carbon pricing is one of the key tools available to accelerate decarbonisation and ensure polluters pay the price of their emissions. Historically, implementing an effective carbon price has been challenging due to the risk of industries relocating to regions without strong climate policy.”
The charge applied by the CBAM will depend on the amount of carbon emitted in the production of the imported good, and the gap between the carbon price applied in the country of origin – if any – and the carbon price faced by UK producers.
Chancellor Jeremy Hunt said: “This levy will make sure carbon intensive products from overseas – like steel and ceramics – face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.
“This should give UK industry the confidence to invest in decarbonisation as the world transitions to net zero.”
The CBAM will be subject to further consultation in 2024, including the precise list of products in scope.
Alongside a CBAM, the government has also announced its intention to work with industry to establish voluntary product standards that businesses could choose to adopt to help promote their low carbon products to customers; and to develop a framework which measures the carbon content of goods, that could support other decarbonisation policies in future.
Ruth Herbert, chief executive of the Carbon Capture & Storage Association, said that the CBAM “is a good starting point” and will lead to more investment in low carbon technologies such as Carbon Capture, Utilisation and Storage (CCUS).
“This is a smart move, given the UK’s geological assets and technical capabilities, which mean it has a clear advantage in the transition to a global net zero economy,” Herbert said. “The details of this policy will need to ensure that exports are not disadvantaged, and that other sectors, such as refining or electricity production can benefit, as many are ideally situated in industrial clusters where they can deploy CCUS.”
In addition, stakeholders within the power, aviation and industrial sectors have been invited to offer their views on proposed changes to the UK Emissions Trading Scheme (ETS).
The ETS Authority is consulting how to better target free allocations of carbon allowances for industries most at risk of carbon leakage, under the ETS. The Authority will also review whether free allocation should be adjusted to reflect any changes to carbon leakage risk for given sectors.
It is also setting out plans to ensure the ETS market continues to offer an effective financial incentive that drives its participants to decarbonise, following a call for evidence last year, with industries being asked for their view on a range of potential measures – including on the design of a new Supply Adjustment Mechanism.
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