The UK must act on carbon emissions from trade: new UKTPO report
By: Tom Walters
Last updated: Wednesday, 29 June 2022
A new report authored by the UK Trade Policy Observatory (UKTPO) and Centre for Inclusive Trade Policy (CITP) of the University of Sussex Business School is published today, providing guidance on how the UK Government can address the issue of emissions within its trade policy. Among its findings are recommendations that the UK should build international alliances to take action - either through Border Carbon Adjustments, or through product standards.
Commissioned by the Committee on Climate Change (CCC), the report has fed into the CCC’s Progress Report to Parliament, also published today, which draws from the report in its recommendations to Government.
The UKTPO/CITP report, Trade policies and emissions reduction: establishing and assessing options broadly focuses on two aspects: firstly, whether the UK should introduce Border Carbon Adjustments (BCAs). These price the emissions embodied in imported products in line with the emission-prices paid by domestic producers. And secondly, product standards which require that imported products fall below specific emissions thresholds. Both of these aim to extend domestic climate regulatory requirements to imported products.
The findings come at a time when the CCC estimates that 46% of the UK’s consumption emissions took place outside the UK, a figure that is in stark contrast to the UK’s net-zero emissions target for 2050, which largely focuses on domestic emissions.
Dr Emily Lydgate, the lead author, said:
“If the UK just outsources its emissions, it will not address its global contribution to climate change. As a services-based economy, there is some concern this is happening. UK citizens have very high per-capita net imports of carbon dioxide – higher than either the US or Japan.
“Another concern is that UK climate policies are actually increasing its carbon footprint. As a country with high carbon pricing and regulatory costs, the UK risks carbon leakage: activities that are emissions-intensive moving to less regulated countries.
“There is, however, no perfect way to address UK consumption emissions through trade policy.
“In introducing Border Carbon Adjustments or product standards, it’s likely that there will be some trade-offs between the technical feasibility of very complex new regulatory requirements, the ambition of these requirements in achieving climate objectives, and their success in treating all countries fairly.
“At present, the UK applies neither Border Carbon Adjustments nor product standards but is considering the introduction of both – hence the CCC’s interest. The EU has recently decided to do so, in the form of its Carbon Border Adjustment Mechanism."
The report finds that the UK should:
Act. Doing nothing on trade is not an attractive option – doing nothing also entails significant costs for UK business and consumers. The report recommends that to address these issues, the UK must coordinate its policies with the EU and other trade partners.
Develop assessment methodologies – the UK should also actively participate in discussions about developing methodologies for assessing emissions embodied in imported products.
Build alliances – participating in ongoing discussions, such as through the G7, will help to ensure that the UK can implement new trade measures while minimising damage to its supply chains.
Support developing countries – providing additional support for developing countries is also in keeping with the spirit of the Paris Agreement’s principle of Common but Differentiated Responsibilities and Respective Capacities (CBDR-RC).
Take WTO-compliance seriously - designing regulation in a manner that takes conformity with WTO requirements seriously is an essential element of trade diplomacy.
Phase-in export rebates - a phased approach to export rebates based on emissions intensity can satisfy environment, WTO non-discrimination and industry objectives, but will increase technical complexity.
Beyond border measures – a more comprehensive approach to supporting global decarbonisation includes actively supporting low-carbon innovation and supply chains, including through green investment and climate finance, cooperation on the development of international standards, and technology transfer.
The release of the report will coincide with publication of the CCC’s own report, The Progress Report to Parliament.