May 21, 2024

The prospect of higher taxes is not usually viewed with joy by British businesses, or Conservative MPs – but when it comes to carbon, that is precisely what many are asking for.

A growing number of manufacturers, Tory MPs and experts are calling for charges to be levied on the carbon emissions associated with imports. They believe the levy is needed to create a level playing field that would enable UK companies to invest in cutting their greenhouse gas emissions, without finding themselves undercut by lower-cost but higher-carbon imports from overseas.

Jerome Mayhew, a Tory member of the environmental audit committee, is convinced the charge will prove popular in his party, despite misgivings among some of his colleagues. “Applying a cost to carbon unlocks the power of the free market to find cheaper, lower-carbon production techniques,” he told the Guardian. “As Conservatives, promoting free trade and free markets is within our DNA.”

Manufacturers will face higher costs for investment in new equipment and processes as the UK moves to net zero greenhouse gas emissions. Without a carbon levy, those companies trying to do the right thing would see their costs rise while imports from countries lacking stringent green regulations prospered, resulting in higher emissions overall and damaging the climate and the UK economy.

With a carbon levy, known as a carbon border adjustment mechanism (CBAM), those overseas manufacturers, in countries such as China, would have an added incentive to cut their carbon footprints and join the green race.

Traditionally, though, some Tories have taken the view that a charge on imports would be protectionist. Rishi Sunak, when he was chancellor of the exchequer, roundly rejected the idea of a CBAM, deriding it as likely to raise prices.

But his successor in the Treasury, Jeremy Hunt, is understood to look far more favourably on the measure – not least because the EU has brought in its new CBAM, now under trial, that will impose heavy additional costs on UK businesses unless the government responds with one of its own.

A proposal for a trial levy may form part of Hunt’s promised response to the US Inflation Reduction Act, Joe Biden’s $369bn package to galvanise green industry. Hunt’s conclusions will be presented alongside the chancellor’s autumn statement next week.

Several Tory MPs told the Guardian they would back such a plan. Tim Loughton, a member of the home affairs select committee, said developments in China, the EU and the US demanded it.

“The great strides we have made in decarbonising have boosted the UK’s international standing and given us a headstart in developing green industries,” he said. “However, we are not the only country that recognises the economic opportunity of decarbonising. Without a CBAM, we risk offshoring manufacturing to China, where huge amounts of carbon-intensive goods are still being produced using their coal-dominated power gird. Chinese goods previously intended for the EU could flood into our country as a result of [the EU’s] CBAM.”

Robert Buckland, a former minister, said the proceeds of the levy could be put to good use within the UK. “CBAM will take further financial burdens off the taxpayer and put them on the polluter, [as] the revenue can be recycled for domestic net zero projects or support households with energy bills,” he noted.

Manufacturers tend to agree. Polling commissioned by the thinktank E3G found that almost two-thirds (64%) of respondents to a survey of 400 people in upper management roles in UK manufacturing were supportive of the UK taxing high-polluting imports in order to incentivise countries with lower environmental standards to limit their emissions.

Sam Hall, the director of the Conservative Environment Network, urged Hunt to bring in a CBAM that would focus first on energy-intensive businesses that have big carbon footprints and are especially liable to being undercut by imports. This could include steel, chemicals and other heavy industry.

He also called for exemptions for imports from the poorer developing countries, to ensure their goods were not penalised unfairly. “There remains an active debate around the design of CBAMs,” he said. “[But] good design can deal with many of the potential objections.”

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