Jerome Mayhew is MP for Broadland.
Last week the Government announced a consultation into the use of a Carbon Border Adjustment Mechanism (CBAM). Right now we are battling a global inflation induced by Covid supply bottlenecks and Putin’s barbaric invasion of Ukraine. But looking back, this small announcement may have just as big an impact on our future economy,
If we fail to bring the international community along the road to net carbon neutrality then the economic consequences, let alone the environmental consequences, will be huge. We have the opportunity to set the course of international debate and shape the carbon reduction agenda in a way that grows our economy.
The Prime Minister recognises this with his 10-point plan for a green industrial revolution. But, important as this is, governments picking technology winners feels like it is missing the key Conservative ingredient that has helped us more than anything else to solve difficult problems, the free market. Why is that, when it comes to carbon emissions, the free market seems to be part of the problem, not the solution?
The answer is that the cist if carbon emissions is not included in most economic exchanges. It simply gets released into the atmosphere without the cost being included in the price. We have tried to tackle with our UK Emissions Trading Scheme, but this only applies to some domestic businesses and not a single import, actively harming our manufacturers in favour of high carbon products from abroad. Economists call this Carbon Leakage.
Since being elected in 2019 I have been arguing that we need a CBAM to apply the same carbon costs to imports as we apply to our own economy. Arguments for a CBAM are growing around the world: the EU published a proposal for a CBAM in July last year and US Senate Democrats released draft legislation to implement a CBAM at the same time.
For the UK the risk is that without international coordination, implementation of CBAMs could degenerate into ‘green’ protectionism, with us on the outside. Brexit allows us to be fleet of foot, to bridge the gap between the US, the EU and other partners in the East. Now is the time for the UK to use our leadership role to rally an alliance of ambitious countries to create multilateral agreement on global carbon pricing.
Momentum for a CBAM is growing in the UK. The cross-party Environmental Audit Select Committee, on which I sit, has recommended that the Government considers CBAMs. Within weeks the Government has acted with a Treasury Ministerial Statement announcing a consultation on how a CBAM could be implemented.
My discussions with ministers and officials at HM Treasury and the Department for Business, Energy, and Industrial Strategy suggests a keenness to explore CBAMs, but as a part of a wider international consensus. The meeting of the G7 next month in Germany provides a perfect opportunity to do just that.
If we can agree an international approach to CBAMs at the G7 (or at least start the conversation) we can avoid the accusations of green protectionism and overcome the risk of a World Trade Organisation challenge, whilst at the same time liberating the free market to reduce carbon use without large scale Carbon Leakage. This could support a renaissance in domestic manufacturing, both in the UK and the rest of the G7, as we take advantage of revitalised domestic supply.
Wouldn’t it be mad to impose an additional tariff on goods whilst fighting global inflation? The answer to that question would be up to the Treasury. It would decide how best to redistribute this novel source of income, allowing significant tax cuts. When the terrible war in Ukraine is history the impact of this policy could be driving lower carbon economic growth for decades to come.
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