Carbon Border Taxes

Question

15:07:00

Asked by

To ask His Majesty’s Government, further to the proposals by the European Union to exempt 80 per cent of eligible EU companies from new carbon border taxes, what plans they have to ensure that equivalent businesses in the United Kingdom are treated similarly.

My Lords, this is already the case. To ensure that the costs of complying with the UK carbon border adjustment mechanism are proportionate, it will apply only to those firms importing CBAM goods valued at £50,000 or more over a rolling 12-month period. The Government estimate that this will exclude 80% of CBAM-eligible firms while retaining more than 99% of imported emissions within the scope of the tax.

My Lords, the carbon border adjustment mechanism is a tariff by any other name. I am involved in an industry affected by CBAM, so I know more than most about the astonishingly divergent way in which the UK Government plan to introduce this tax. It will damage competitiveness, be complex to administer and drive growing inflationary pressures. There are even proposals to levy the tax to protect industries that do not even exist anymore. The EU has worked out for itself—

Question!

I am just about to ask the question. The EU has worked out for itself that building a walled garden around the economy will damage its own competitiveness. The Prime Minister said today in PMQs that all options were on the table in so far as tariffs are concerned. Does the Minister agree that the whole UK proposal needs a fresh look, or is he prepared to see us sleepwalk into a trade war with our friends and allies in the United States while damaging trade with our close EU partners?

I am grateful to the noble Lord for his question. However, the answer is no, I do not agree with him. Reducing the UK’s carbon emissions is necessary to meet our emissions targets, and the emissions trading scheme and the carbon border adjustment mechanism are necessary tools to do that. Our approach is very similar to that of the EU. As the noble Lord said in his Question, we are doing exactly what the EU is doing—in fact, I think it has followed us, rather than the other way around, so our approaches are extremely similar. The US Administration have made no public comment on the UK CBAM, and I am not going to speculate on a hypothetical.

My Lords, does the Minister agree that the UK and the EU running separate carbon markets only adds regulatory burdens and damages our energy transition and national industries? Is it time to work with our EU partners and look at relinking carbon markets to help to make our industries more competitive and drive down our energy bills?

I absolutely agree with the noble Earl that alignment is helpful to UK competitiveness. We recognise that alignment with existing regimes can reduce administration burdens, so we will align where appropriate and we will follow developments on the EU CBAM very closely. We also continue to explore all options to improve trade and investment with the EU, which includes the UK and EU giving serious consideration to linking our emissions trading schemes.

My Lords, given that we now produce no nitrogen fertiliser at all in the United Kingdom, and all of it is imported, have the Government calculated the impact of the carbon border tax on the price of food grown in the UK?

Fertiliser production in the UK is subject to carbon pricing under the UK Emissions Trading Scheme. A UK CBAM will ensure that fertiliser produced overseas faces a comparable carbon price to equivalent goods produced in the UK. Most UK agricultural prices are a function of a range of international factors and the Government do not expect a CBAM on fertiliser to put UK farmers at a competitive disadvantage.

My Lords, I declare an interest in this subject. Further to the question asked by the noble Earl, Lord Devon, can the Minister say whether the Government have made any assessment at all of the impact that this could have on our balance of payments?

I do not think that that is relevant to this policy. Most of our trade in food is with the EU, and the EU has a similar scheme to ours.

My Lords, is not this another example of the mess that has been left by the previous Government? Does my noble friend agree that they did nothing to negotiate this, which is now causing problems to our industry?

I am very tempted to agree with my noble friend. I think that what he says is absolutely the case.

My Lords, UK energy prices are far too high, notably for industrial uses such as steel, cement and ceramics, and for manufacturing, which are vital to the UK economy. Does the Minister agree that the arrangements for a carbon tax here and any border mechanisms must always be considered against the need to reduce energy costs for users and, as has been foreshadowed, to keep prices down, especially for hard-pressed consumers?

Yes—I agree with the noble Baroness that energy prices are too high. I just wonder what the previous Government did to tackle that over 14 years. This Government have invested in CCUS, for example, which the previous Government did not. I do not know whether the noble Baroness agrees with our investments in that; she opposes the revenue-raising measures that we have taken to raise the funds to invest in those measures. It is an interesting question, but I of course agree with her. That is why the tax is designed in exactly the way that it is.

My Lords, to return to my noble friend Lord Fuller’s question, how is this different from a tariff? One effect of a tariff is that it results in the outsourcing of manufacturing. People will take car-making or whatever to places that are not affected by this additional levy. Have the Government made any assessment of how much deindustrialisation there will be as a consequence of imposing what is, in effect, a tariff on ourselves?

As I understand it, the noble Lord likes market-led approaches. The UK Emissions Trading Scheme is a market-led approach whereby those domestic firms and industries that are able to decarbonise quickly do so first, while technological solutions are found for those where it is more difficult. To maintain the integrity of the UK’s decarbonisation efforts through the emissions trading scheme, we must mitigate the risk of carbon leakage, which means that we must have a carbon border adjustment mechanism.