Border Carbon Adjustment Tariffs and Decarbonisation

Part of the debate – in the House of Commons at 5:53 pm on 16th December 2020.

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Photo of Kwasi Kwarteng Kwasi Kwarteng The Minister of State, Department for Business, Energy and Industrial Strategy 5:53 pm, 16th December 2020

My hon. Friend Jerome Mayhew gave a compelling and fascinating speech. He elucidated many of the technical difficulties associated with imposing unilaterally, as he was arguing, a carbon border tax. My hon. Friend Anthony Browne hit the nail on the head when he asked, “Should we do this unilaterally?” I am going to start by saying that, in my view and in the Government’s view, this is an important subject but it has to be treated as part of a multilateral effort. We are responsible for 1% of carbon emissions globally, and if we impose a tax unilaterally on carbon-emitting products coming into this country, we may well be disadvantaging our own consumers if others around the world are not placing such a tax. The Government feel that multilateral co-operation in this regard is by far the best way to prevent carbon leakage.

Another thing I would say to my hon. Friend is that by focusing on carbon emissions, he is really discussing the thorny issue of carbon accounting. Ultimately, the intellectual difficulty of accounting for carbon is the broader problem of whether the carbon is produced abroad or at home. In that respect, I would like to refer him to what my right hon. Friend the Chancellor of the Exchequer said in his announcement in this Chamber a little more than a month ago. I am proud that he announced that the UK would become the first G20 country to make Taskforce on Climate-related Financial Disclosures-aligned climate-related financial disclosures fully mandatory across the economy.

I am not saying that my hon. Friend said this, but I do not think it is right to say that we are somehow laggards on the issue of carbon accounting. In fact, I would say that we are taking a leadership role on this subject. He alluded to the fact that the EU is looking at how it can implement a carbon import regime with a tax on carbon-emitting products coming into the EU, and we are absolutely engaged with the EU in discussing that. We feel that that is part of the multilateral approach.

If my hon. Friend takes a broad view of this subject internationally, he will see that 2020 has seen far greater progress than any previous year. Only a couple of months ago the Chinese Government pledged to achieve a net zero carbon target in 2060, and that is incredibly significant. I remember when I was first appointed to this job, someone said to me that what we did in the United Kingdom would make no difference if China continued along its present path. I am pleased to say that China has changed its path and said very clearly that it has set a net zero target for 2060. The Japanese followed suit soon afterwards, adopting our target of 2050, as did the South Koreans. So the auspices for international co-operation on the measure that my hon. Friend has described are actually very good, and there is a chance that if we cannot reach an agreement at COP26 next November, we may well be advancing along the lines that he suggests in the not-too-distant future. I have to stress that multilateral co-operation on how we price carbon and how we account for carbon in the round is far more constructive than placing a unilateral tax in the way that he has described.

One thing I would say about the figures that my hon. Friend very ably quoted in regard to the benefit to the Treasury is that there would obviously be behavioural impacts, so it would be difficult for me to model the consumer demand for products that had been taxed in the way that he has described. I would be interested to have a conversation with him about the assumptions behind the analysis that he very ably referred to in his excellent speech.