This means that decisions regarding the design and implementation of the UK CBAM will be the responsibility of the new government.
The leading theme in the ISEP response is that the introduction of the CBAM is highly welcomed. It can play a critical part in incentivising the transition to a global low-carbon economy while supporting the early adopters of low carbon technologies within and outside the UK. However, whether it fulfils this ambition will depend upon the detail and design of the mechanism itself.
Our first key recommendation is that the CBAM is implemented without delay - the proposed approach to commodity codes, default values, and mechanisms is a good place to start.
Our second recommendation is that the accuracy of emissions data should be improved. Default values are acceptable only in the absence of accurate data, and they must be set high to be effective. If they are set too low then there is no incentive for polluting suppliers to decarbonise. Meanwhile, the barriers to obtaining accurate data are numerous and particularly high for SMEs. The longer the supply chain, and the more it criss-crosses multiple continents, the more difficult it gets. Spend-based or other default emissions values present the same problems as default values for CBAM – they incentivise manufacturers to decarbonise to the level of the default and no lower.
The third recommendation is that the scheme should be harmonised with the EU CBAM and other CBAMs being developed. The risks of schemes that diverge include additional calculation and reporting burdens on businesses, and, where values are set at different rates, of taxation (which might be expected to be recycled as support for domestic decarbonisation efforts) accruing to other governments and industry in other countries.
An overarching note comes up in the ISEP response which is that gathering, validating and verifying data, and reporting on the tax liabilities, are all roles that will require capable and qualified people to do them. Some of these roles will be entirely new while others will be existing supplemented with upskilling, which supports ISEP’s all jobs greener campaign.
For the incoming government, implementation of the CBAM as designed could be an early action. We urge the new administration to immediately review methods for capturing better data, whilst reviewing default values, and to make it a priority to align the UK CBAM with that of the EU.
Read ISEP's full response here.
