London, 8 July. The Global Warming Policy Foundation (GWPF) has today released CBAM: Market-based or Market Bust?, a new report by Catherine McBride OBE, CEO of the Great British Business Council and a former member of the UK’s Trade and Agriculture Commission.
The report examines the likely impacts of the UK’s proposed Carbon Border Adjustment Mechanism (CBAM) and predicts that it will not protect British industry as intended. It argues for an alternative approach which uses competitive market principles to drive efficiency alongside emissions reductions.
Key Findings
- The UK’s proposed CBAM, due to launch in January 2027, will apply to five imported raw commodities – aluminium, cement, fertilisers, hydrogen, and iron and steel. But domestic production of three of these has already collapsed, and the remaining two (cement and hydrogen) won’t become more competitive under CBAM so long as the UK maintains some of the highest industrial electricity costs and emissions taxes in the developed world.
- Rather than reshoring production, CBAM will primarily raise costs for UK manufacturers. Particularly the machinery and transport equipment sector which relies on imported aluminium and steel to build cars, aircraft parts and industrial equipment. Ultimately, these costs will be passed on to consumers.
- The UK has a history of carbon taxation, from the 1993 Fuel Duty Escalator to the 2001 Climate Change Levy and the Emissions Trading Scheme (ETS). These are taxes intended to reduce emissions, but they rarely eliminate externalities. Instead, they have become indispensable sources of government revenue generation. EU manufacturers continue to receive far more generous compensation for carbon costs than their UK counterparts.
- Britain should scrap both the ETS and CBAM. A better approach involves reducing the cost of investment in cleaner, more efficient plant and equipment so that reductions in greenhouse gas emissions become a beneficial side-effect of economic growth. Proposals for a Global Climate and Freedom Accord (CFA), as proposed in a paper by the Institute for Free Trade, an independent think tank, show how this could be done in practice through policies such as tax deductions for low emissions equipment and Rapid Innovation Funds.
The report’s author, Catherine McBride, said:
“The new import tariff (known as CBAM) based on carbon emissions is due to start in January 2027, less than 6 months away. It will apply to imported steel, aluminium, cement, fertiliser and hydrogen. Yet the government has yet to lay the final secondary legislation. And industry is in the dark about how much this will cost in both the tariffs and in the administrative burden.
“If the UK follows the EU’s CBAM, which is charged by weight and varies by product, material, and country of production, it will harm the UK’s downstream users: car manufacturers, aircraft part manufacturers, the construction industry, and farmers.”
GWPF Head of Policy, Harry Wilkinson, said:
“Britain faces a ticking time-bomb under its economy. It seems extraordinary that despite the cost-of-living pressures that the public are facing, Britain’s policymakers are hell-bent on introducing a suicidal policy that will raise prices higher and further hollow out our manufacturing base.
“This was a government that was elected to address the root causes of the cost-of-living crisis and our economic stagnation. As Sir Tony Blair has said, self-defeating policies such as this serve only to relegate Britain from the ‘Premier League of Nations.’”
Read the full report here – CBAM: Market-Based or Market Bust? (pdf)
