Border Carbon Adjustment Tariffs and Decarbonisation

Part of the debate – in the House of Commons at 5:30 pm on 16th December 2020.

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Photo of Jerome Mayhew Jerome Mayhew Conservative, Broadland 5:30 pm, 16th December 2020

I thank my hon. Friend for his intervention. The answer is that there are many different ways that we could approach it. The simplest would be to choose the five or six key carbon-heavy industries and start with them. As we get more knowledge of how to implement this kind of scheme, we could spread out to the wider economy. I suggest that the best way to do that would be to look at the carbon-emitting credentials of the energy market in the third country and assess in broad terms what its carbon contribution is. For example, in China, the coal contribution to the energy mix is between 70% and 80% and we would use that as the basis for the carbon contribution of its imports. When we get a bit more sophisticated, we could look at giving rebates to individual businesses that can demonstrate that they have a low-carbon approach despite the high-carbon attitude of their country as a whole. That would benefit behaviour and would not be protectionist, but would merely be a fair assessment of the carbon cost of transactions.

Moving on to energy, we naturally assume that we create all the energy that we use in this country domestically, but that is not the case. On average, we import, via undersea interconnectors, about 7% of the electricity that we use in this country. Members may recall that, last May, we trumpeted in the press that we had a two-week period in which we were coal free. We had coal-free electricity for two weeks. That was very exciting, but what the newspapers failed to mention was that, during that two-week period, we imported from Holland 40 GW of coal-fired electricity. The reason that we did that was not that we lacked generating capacity in the United Kingdom, but that it was cheaper to import coal-fired electricity from mainland Europe than it was to use our own. The reason why it was cheaper was that it was entirely tax-free, whereas we imposed a carbon tax on the generation of our own domestic electricity. Unbelievably, we actually incentivise the importation of high-carbon coal-generated electricity at the expense of our domestic manufacturing processes. How can that be right? A border carbon adjustment would sort that out in a jiffy.

What single better way is there to forward this Government’s levelling-up agenda than by putting in place the economic conditions for the market to want to re-industrialise in the UK, and all that with no need for Government subsidies. In fact, not only does it not require Government subsidies but it will actually produce an annual windfall for the Treasury year after year. Working out how big that windfall might be has a number of imponderables in it, but the Grantham Research Institute of Climate Change and the Environment has produced a report on this and, again, using the assessment of a carbon price between £50 and £75 a tonne, starting in 2020 and working up towards 2030, it assessed that the gross amount that the Treasury could recover under this process would max out at £36.7 billion a year. I stress that that is the gross amount. Members may well take the view that, rather like VAT, this is a tax that is consumer based and would impact poorer households disproportionately as a percentage of their gross income. The Government might very well want to use some of that £36.7 billion to cushion the blow and to make it more acceptable for lower-income families, perhaps by investing in insulation for their houses or other measures.