UK industry chief urges Sunak to look at Switzerland to avoid EU’s tax

The Carbon Border Adjustment Mechanism (CBAM), proposed by the European Commission in July 2021, is expected to come into effect in the coming years but risks creating problems for the UK. The carbon adjustment mechanism at the border was designed by the EU to protect industries that try to decarbonise production processes and avoid carbon leakage, or the practice of companies to relocate outside Europe where the price of emissions is lower.The proposed mechanism would see a transition period from 2023 to then officially enter into force in 2026.Once implemented, the mechanism will target a range of CO2-intensive products (currently electricity, iron and steel, cement, aluminum and some fertilisers) manufactured outside the European Emissions Trading System (ETS) with a lower carbon price than the EU.According to experts, the UK will be one of the countries most affected by the new tax, with its iron, steel and aluminum exports particularly vulnerable.Furthermore, even if the cost of emissions in the country were high enough to avoid the overcharge, there would still be costly processes to go through to get the goods from Northern Ireland and the United Kingdom to Europe. Rishi Sunak is being urged to find a solution to the EU’s CBAM tax plan (Image: Getty) The Carbon Border Adjustment Mechanism (CBAM) was proposed by the European Commission in July 2021 (Image: Getty)According to a report produced by Chatham House, “the UK’s own ETS which replaced the UK’s participation in the EU ETS significantly softens the blow of the CBAM to the UK economy”.However, despite the UK’s ETS’s current design largely mirroring the EU ETS, “it cannot be exempted from the CBAM and so avoiding vulnerability depends on maintaining similar price levels and market design,” the report adds.They continued: “For instance, the UK has its own system of free allocation and, if this system is maintained as the EU transitions away from free allocation, UK industries will increasingly face greater exposure to the CBAM since their actual carbon costs will begin to diverge significantly from EU competitors.”Given its close trading ties with the EU, the UK will continue to be among the most exposed trading partners as the CBAM expands to new sectors – exports to the EU account for almost half the value of the UK’s total goods exports.”READ MORE: Russian troops slam top general and beg for Kremlin helpThe EU has made it clear several times that there will be no exemptions in the carbon adjustment mechanism at the border for countries outside the European ETS. According to a European official, “the CBAM regulation provides exemptions only for countries that participate in the EU ETS or are fully linked to it”.In fact, any exemption could question the compatibility of the system with the rules of the World Trade Organisation – rules that the EU has been very careful to respect.Speaking to Express.co.uk, Richard Warren, Head of Policy & External Affairs at UK Steel said: ‘Whilst the UK’s emissions trading system is equivalent to the EU’s, therefore theoretically limiting the impact of this policy on UK steelmakers, there remains uncertainty and concern about how UK steel exports to Europe will practically be treated after the introduction of the Carbon Border Mechanism.”In the short term the Government must look to link the UK emissions trading system to the EU’s, as Switzerland has already done, to guarantee UK steel producers will not face additional costs and administrative burdens on exports.DON’T MISS:’Putin doesn’t stand a chance’ as Russia’s economy too small [DATA]Huge Ukraine military convoy spotted approaching Kherson [VIDEO]More than 600k Brexit-fleeing Brits apply for Irish passports [INSIGHT]”This has been a long-term UK Government aim, but little progress has been made to date on this. Longer term, it is important the UK does not diverge too far away from the EU system ensuring we continue to be able to trade freely into our most important export market.”We urge the Government to move quickly to develop and implement plans for the UK’s own Carbon Border Mechanism, ensuring the sector can invest in decarbonisation and continue to trade competitively both at home and abroad.’Last June, the UK Government said it was actively engaging with the EU on its CBAM proposals.They added that “the UK has ambitious carbon pricing through our emissions trading scheme and Carbon Price Support mechanism. We expect the EU CBAM to take account of this in its implementation”.