ICAEW has responded, in ICAEW REP 57/23, to the government’s consultation, Addressing carbon leakage risk to support decarbonisation. For the purposes of the consultation, carbon leakage is defined as the movement of production and associated emissions from one country to another, due to different levels of decarbonisation efforts through carbon pricing and climate regulation.
The exploratory consultation considered a range of policy measures to mitigate carbon leakage risk. The measures consulted on included a carbon border adjustment mechanism (CBAM) and mandatory product standards (MPS).
A CBAM applies a carbon price at the border to imports of certain products, based on their embedded emissions or carbon footprint, equivalent to the carbon price borne on those products by domestic producers.
MPS would set an upper limit on the embodied emissions for individual products placed on the UK market, or produced in the UK, prohibiting products which are more emissions intensive than a defined limit.
In line with its strategy to help achieve UN Sustainable Development Goals, ICAEW is supportive of both measures. ICAEW considers the measures necessary if the UK is to succeed in its Net Zero Strategy. However, it is conscious of the possible administrative burden these measures could place on businesses. On this basis, the response has a strong focus on reducing the administrative burden wherever possible.
The response also makes the following points:
- Where possible, the government should work multilaterally with international partners on the development of carbon leakage measures, but this should not come at the cost of working on domestic policies.
- The government should consider how any carbon leakage measures can be aligned with its development goals to ensure that the measures do not hinder the development of low income and least developed countries.
- The government should continue to engage with a wide range of stakeholders to ensure administrative simplicity and to avoid unintended consequences of any new measures.
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