The UK's border carbon leakage trilemma

Abstract

Concern about manufacturing emissions relocating to places with lax climate regulation has led some countries, including the United Kingdom (UK), to consider, or introduce, carbon pricing on imported products in some sectors. Such regulations, known generically as Border Carbon Adjustments (BCAs), comprise the first mandatory requirements addressing emissions embodied in traded products. Existing analyses have identified BCA design options that minimize its controversial characteristics. In contrast, this article argues that optimization can only serve a subset of identified objectives: BCA design presents a policy trilemma between climate ambition, technical feasibility and international equity. The UK's status as a medium-sized economy proximate to the EU means that following EU BCA design, established through its Carbon Border Adjustment Mechanism (CBAM), will calibrate the UK's level of climate ambition (objective 1) to that of the EU, but lessen technical complexity (objective 2). It will not resolve international equity concerns (objective 3), but help the UK to address them diplomatically.