Tory pressure mounts for cross-border carbon levy

Boris Johnson is coming under pressure from senior Conservatives, including his own father, to introduce a UK carbon border tax to protect British industry from cheap competition from polluting countries.

Rishi Sunak, chancellor, has ordered work to be done on the tax, a levy on carbon emissions attributed to imported goods that are not carbon-taxed at source.

Treasury insiders said a carbon border tax would address “real issues” and that Sunak was interested in the proposal, but admitted that there were serious technical hurdles to be overcome.

John Kerry, US envoy on climate, recently told Bloomberg that Joe Biden, US president, was “interested in evaluating the border adjustment mechanism”, while the EU is also planning to introduce its own carbon tax on imports.

Liam Fox, former UK international trade secretary, will on Thursday urge Johnson to lead a global debate on carbon border taxation ahead of the UN COP26 climate change summit in Glasgow in November.

“We must use the opportunity not simply to chair but to lead,” Fox will say in a speech to the Centre for Policy Studies, a centre-right think-tank.

“There is no point in damaging the competitiveness of economies such as the UK while other countries maintain their competitive edge at a cost to the global climate.”

Discussions have gained urgency following a big rally in the price of carbon in the UK and EU, sparked by increased commitments from governments to cut emissions. Both use tradeable credits to help set the price of how much industries like electricity utilities and large manufacturers must pay for polluting.

In the EU, the price of carbon allowances has more than doubled from its pre-pandemic level to trade above €50 a tonne while, in the UK, a post-Brexit replacement carbon trading system launched last week with even higher prices above £50 a tonne.

The UK has an £18 carbon levy that polluters must pay in addition to the carbon allowance, taking the total cost for certain sectors to almost £70 a tonne, or about £25 a tonne more than rivals in Europe are paying. Britain has the world’s highest carbon price.

Fox acknowledges that China, with its continued reliance on non-renewable energy, regards the idea of a border tax on carbon as protectionist. He said there may be room to exempt poorer countries.

Other issues include questions about what countries and industries should be covered, how to measure emissions, how to determine equivalence between carbon pricing in different countries and how to comply with existing World Trade Organization rules.

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Fox, Britain’s unsuccessful candidate to run the WTO, will be introduced on Thursday by Stanley Johnson, the prime minister’s father, who said the logic of a border tax was irrefutable.

“You can’t have a system in place for carbon pricing unless you also put in place a border tax,” he said. Johnson, ambassador for the Conservative environmental network, said his son would be “instinctively receptive”.

For some green campaigners, the idea of a carbon border tax “club” of the EU and US offers a way to prod big emitters into taking faster action to cut greenhouse gases.

The EU unveiled plans in late 2019 for what it called a “carbon border adjustment mechanism”. That proposal is still being finalised, but China, India and other nations have expressed concern about such a move.

The EU’s tool will initially target only a handful of products such as cement, steel, iron and some fertilisers. It is likely to hit companies in neighbourhood countries like Russia rather than richer states like the UK or US.