On 18 December 2023, the UK government announced it will introduce a Carbon Border Adjustment Mechanism by 2027.
The mechanism will initially apply to imports of emissions intensive industrial goods, including aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel.
The mechanism is intended to mitigate carbon leakage risks, by ensuring that imports of products that face a cost of carbon under the UK ETS pay an equivalent charge at the border.
It is planned to be paid by the importer at a rate adjusted to reflect domestic free allocation in the UK ETS, and explicit emissions pricing in the country of origin.
The details of the scheme will be subject to public consultation in 2024. This will include engagement with the UK’s trading partners, as well as affected businesses and organisations.
The decision to introduce the mechanism came following public consultation on options to address carbon leakage, which ran between 30 March 2023 and 22 June 2023.
This announcement comes shortly after the EU's Carbon Border Adjustment Mechanism took effect in October 2023.
On the same day, the UK government released a long-term pathway for the UK ETS. The pathway sets the government’s clear intention to continue the UK ETS until at least 2050, and outlines work it will undertake to align the ETS cap with the net-zero trajectory, expand the scheme into the waste and maritime sectors, consider engineered greenhouse gas removals, and review free allocation to address carbon leakage risk.
Two consultations were also initiated, addressing future markets policy proposals and proposed changes to the free allocation methodology for stationary sectors. These consultations are open until 11 March 2024.