British businesses urge introduction of carbon tariff on imports
British manufacturers of low-carbon goods want the Government to ensure that they aren't being discouraged by a market saturated with low-cost, high-carbon imports.
That is one of the recommendations being set out by influential business body the Aldersgate Group this week, as part of a new report on developing strong UK supply chains for low-carbon products.
The report acknowledges the UK Government’s continual emphasis on the private sector as being key to the delivery of the net-zero transition, and the narrative it is building around supporting domestic low-carbon industries as part of the Covid-19 recovery package.
It also warns that current legislation and regulation is not enough to properly capitalise on the opportunities of increasing domestic production of things like lithium, low-carbon steel and cement. Manufacturers in industries like automotive and building materials are finding it hard to electrify processes or source alternative fuels, and are concerned about being undercut on price by cheap by high-carbon imports, the report argues.
On decarbonising production, the report argues that “more targeted and accessible investment” is needed, beyond schemes already underway through the Industrial Decarbonisation Strategy. It outlines how some manufacturers are struggling to get past trialling greener technologies to wider deployment. Investment for projects at businesses is likely to come from a mix of private and public finance. Businesses would, additionally, benefit from tax relief on investments that create lower-carbon processes, according to the Aldersgate Group.
Beyond projects at business sites, the report also calls for increased Government funding for scaling technologies that could be adopted by industrial businesses, including hydrogen heating and carbon capture, usage and storage (CCUS).
Then, on imports, the report calls on the Government to put forward “tangible” plans for a Carbon Border Adjustment Mechanism (CBAM). Such a system would require importers to pay for the carbon generated in the manufacture of products, to the level that they would have if they produced the goods in the UK.
The EU’s economy ministers notably agreed this week to work towards the introduction of a CBAM for the bloc in 2026. The UK launched its post-Brexit Emissions Trading Scheme (ETS) last May and, subsequently, MPs launched an inquiry into the potential for a UK CBAM to run alongside the ETS. A final report from that inquiry is due shortly.
The report stops short of proposing an introduction date for a UK CBAM or a starting carbon price. However, it states that alignment with the EU’s approach would be preferable.
It also goes on to state: “When putting forward a proposal for a CBAM, the UK should develop a strategy for co-operation and encouragement with other countries on its design and implementation – including offering technical and capacity-building support for developing countries as part of its climate diplomacy.
“Such a package would meet the objective of incentivising companies and countries to adopt greener methods of production, whilst rewarding companies and countries that are already adopting greener practices by making them more competitive.
“The UK should also seek to comprehensively understand the financial and technological support developing countries might need under its proposals – for example by exempting vulnerable nations, such as Least Developed Countries and Small Island Developing States, or using the revenue generated by the CBAM to accelerate the diffusion and uptake of low carbon industrial production methods in lower-income countries.”
Aldersgate Group members operating in industrial sectors include Cemex, Siemens, Willmott Dixon, Vestas and Johnson Matthey. Its membership also includes an array of organisations that support industrial sectors, including National Grid, Ramboll and WSP.
“UK heavy industrial sectors already employ more than 2.6 million people and contribute £170bn each year to the UK economy,” said the Aldersgate Group’s executive director Nick Molho.
“The net-zero transition provides an opportunity to grow this contribution even further by increasing investment in domestic supply chains to support these sectors as they decarbonise. For this to materialise, the Government must put in place a comprehensive set of measures that grows the demand for low carbon industrial products, accelerates innovation in key technologies such as CCS and low carbon hydrogen, makes the price of electricity more competitive and provides a level playing field against high carbon imports whilst maximising opportunities to export low carbon industrial products.”
Energy price crisis
It is worth noting that the report – as Molho said – also makes reference to the ongoing energy price crisis. With the Government due to set out plans for increasing domestic energy production in the coming days, the report urges support for renewable energy deployment and the related grid development.
It states: “The UK’s heavy industries pay, on average, 25–44% more for their electricity than industrial producers in the EU. This places UK firms at a significant competitive disadvantage to their key European rivals, while also stifling their ability to decarbonise: electrification, CCUS and low-carbon hydrogen production all require competitively priced low carbon electricity”.
As well as increasing renewables targets and supporting further deployment with simpler planning systems and more public finance, the report calls on the government to provide information on the volume of projects being auctioned annually further in advance, to “improve the investment climate further”. The UK is currently regarded as the fifth most attractive investment market for renewables in the world.
Prime Minister Boris Johnson confirmed this week that the new energy strategy will be published next week (w/b 21 March). He is believed to be supportive of a mix of measures to increase renewables, boost nuclear and improve the energy efficiency of buildings. However, Johnson has also reportedly been rowing with other parts of Government over his pro-fracking views and support for increasing North Sea oil and gas production in the near term.