Abstract
KEY POINTS • The UK, as one of the most highly developed countries in the world, is also among the top destinations of carbon imports. • A Border Carbon Adjustment (BCA) involves extending domestic carbon pricing by introducing carbon- related charges on imported products, typically in high emitting sectors which are those at risk of carbon leakage. • There is the possibility that if the EU introduces a CBAM and the UK does not, the UK could become more of a target for carbon-intensive trade from third countries. • The EU ETS allows for other schemes to be linked. Both the UK and EU are planning ETS changes, so unless the two systems continue to mirror each other, the earlier that the two systems can be linked the more straightforward the process will be. • Four UK high-risk carbon leakage industries overlap with the EU’s CBAM industries and in each of these sectors, the EU is by far the most important trading partner. This suggests that any divergence in the UK and EU ETS could lead to changes in the location of production. This will tend to equalize the price of the ETS permits between the UK and the EU markets and may or may not lead to carbon leakage depending on the differences in emissions between the UK and the EU. • The introduction of EU CBAM could have an immediate effect on the UK’s export competitiveness within the EU, due to the additional import requirements. • The EU CBAM is likely to have implications for its trade partners. Many emerging economies in Asia and North Africa, who do not price carbon domestically will now be subject to additional costs, are therefore likely to experience a loss in their existing export competitiveness into EU markets.
Info
Other-Internet Publication, 2021
UN SDG Classification
DK Main Research Area
Social Science
