Q&A: Carbon border tax

In December 2023 the government announced the introduction of a carbon border tax. A crucial step towards achieving the UK’s net zero targets the government must now go further and commit to aligning the UK’s carbon pricing schemes with equivalent schemes in the EU.

What is the UK government proposing?

The CBAM – or carbon border adjustment mechanism – is a new carbon tax being implemented by the EU and set to come into force after an initial transitional period by 1 January 2026.

The aim of the EU CBAM is to reduce ‘carbon leakage’. This is a phenomenon whereby countries facing more stringent carbon rules domestically end up simply offshoring their carbon usage by importing goods from other jurisdictions where rules on embedded carbon are less stringent.

In response to the EU’s plans industry leaders and trade bodies throughout the UK...