On 30 March 2023, the UK government launched a consultation on addressing carbon leakage risk to support decarbonisation. Carbon leakage refers to businesses moving their operations overseas to countries with less stringent carbon emissions regulations.
The consultation aims to gather feedback on the government's proposed measures to tackle the risk of carbon leakage. This includes the introduction of a carbon border adjustment mechanism (CBAM) and a carbon pricing regime. The CBAM would impose tariffs on imported goods based on their carbon footprint. The carbon pricing regime would place a price on carbon emissions.
These measures may have a significant impact on businesses, particularly those in high-emitting sectors such as steel, cement and chemicals. The consultation seeks feedback on how these measures can be implemented in a way that minimises the impact on businesses and ensures a level playing field.
The consultation also considers the possible introduction of a carbon credit scheme, which would reward companies for reducing their emissions below a certain threshold. The scheme would provide an incentive for companies to invest in low-carbon technologies.
The UK government's proposals are part of an international trend towards addressing the risk of carbon leakage. The European Union is implementing a CBAM, which will begin to come into force on 1 October 2023. Other countries are considering similar measures.
The government is seeking feedback from a wide range of stakeholders, including businesses, industry bodies, non-governmental organisations with an interest in trade, and academics, to ensure that its proposals are robust and effective. The consultation will run until 22 June 2023.
ICAEW’s Tax Faculty intends to respond to the consultation. It welcomes views from members. If you have comments, please contact Ed Saltmarsh by 22 May.
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