SITE VISIT: Cemex cement plant
On 21st November 2023, the UK Trade and Business Commission team will be undertaking a site visit to the Cemex cement plant in Rugby.
Cemex initially reached out to the UK Trade and Business Commission some months ago to highlight a few areas of concern. As the EU moves ahead with its CBAM, Cemex has concerns about the lack of alignment between the EU and UK ETS systems, and about this potential to affect FDI into the UK (they are the largest Mexican investor in the UK). They are also concerned about the shifting regime around conformity assessment in the UK, and how this may affect their ability access cutting edge technologies if these are not conformity assessed for the UK market.
The UKTBC team decided to arrange a site visit to Cemex in order to gather some evidence on the ground and speak to those who work in industries directly affected by shifting Government policy with regards to trade and international cooperation.
INTRODUCTION
In June 2023, the UK Trade and Business Commission (UKTBC) produced a comprehensive report on the pragmatic steps the UK Government needs to take to improve international trading relationships. The UKTBC blueprint for trade contains 114 distinct recommendations and is the culmination of the evidence taken this year during the programme of sessions and consultation exercise.
We have hosted 38 evidence sessions, performed site visits, taken over 80 hours of live testimony from 234 expert witnesses, industry leaders and business owners and received written evidence submissions from over 200 organisations as part of an open consultation.
As part of this report, the UK Trade and Business Commission made the recommendations that the UK should engage in negotiations with the EU to establish a formal link between the UK and EU ETS, design and implement a UK Carbon Border Adjustment Mechanism (CBAM) that aligns with the EU CBAM scheme, and engage in ongoing dialogue with the EU and other international partners on Net Zero.
With the EU CBAM transitional phase having entered into force on the 1st of October 2023 and the increased likelihood of the UK introducing its own CBAM , the Commission has gathered further evidence on what the introduction of the EU CBAM means for UK businesses and the relationship between Net Zero and trade.
The scale and urgency of transitioning to Net Zero inevitably impacts UK trade. Through discussing whether trade can help or hinder decarbonisation, and assessing whether the UK Government is taking adequate steps to decarbonise trade, our expert witnesses set out recommendations of what a trade policy sensitive to the climate crisis might look like.
The Secretariat also took evidence from CEMEX, the largest cement producer in the UK, on the impact of EU CBAM on carbon-intensive industries in the UK, and spoke to the organisations Transform Trade and BOND to discuss how decarbonising trade affects developing countries.
Our witnesses highlighted that the UK Government must take action to align UK carbon pricing systems with the EU’s, as divergence will cause significant disruption for UK businesses. They also outlined that the UK must ensure trading relationships do not undermine domestic Net Zero ambitions and instead provide security and certainty for UK businesses through the decarbonisation process.
EVIDENCE SESSION WITNESSES
PANEL 1: CBAM AND ETS
LAURA KELLY, Director, Shaping Sustainable Markets, International Institute for Environment and Development
LUCA TASCHINI, Professor, University of Edinburgh Business School
CHIMDI OBIENU, Research Consultant, Carbon Economy, EcoAct
PANEL 2: TRADE POLICY AND NET ZERO
JONNY PETERS, Senior Policy Advisor, E3G
GUDRUN CARTWRIGHT, Climate Action Director, Business in the Community
ESIN SERIN, Policy Fellow, Grantham Research Institute, LSE
3. OTHER ORGANISATIONS CONSULTED
TRANSFORM TRADE
BOND
CEMEX
KEY FINDINGS
Current UK trade policy is not compatible with domestic Net Zero ambitions.
Preventing carbon leakage is a key part of environmental trade policy. The UK should respond to the EU CBAM by designing and implementing a UK CBAM that aligns with the EU scheme, and link the UK and EU ETS.
As confidence in the UK Government’s path to Net Zero wanes, opportunities to grow the UK’s market share of green industries are being missed.
TRADE AND NET ZERO
Despite diplomatic efforts and multilateral initiatives to collaborate on Net Zero, world trade is not fully aligned with decarbonisation initiatives. There is a significant shift happening in economies across the world as domestic climate policies are implemented, but countries are not collaborating effectively on the most pressing issues.
“There are many, many platforms where it’s been tried to make the global trade system compatible with the delivery of global Net Zero emissions and that’s not only the World Trade Organisation and its recent launch of the structured discussions on trade and environmental sustainability, and now we get work explicitly on aligning international standards by the International Sustainability Standards Board, and then more recently the coalition of Trade Ministers for Climate Action was launched with an aim to bring Trade Ministers from around the World to work together on that nexus between climate and trade. But despite this complex landscape of initiatives, platforms and dialogues that do exist, I’m not confident that current efforts are sufficient to fully align the World Trade system with the transition to Net Zero.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ The pace at which that dialogue translates to action, if any, is simply too slow, and that’s probably not unique to trade or even climate, but just an inherent aspect of international diplomacy.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ I think really what we’re lacking here at the moment is a real kind of political uplift and efforts in terms of agenda shaping”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
“ We are now operating in new economic and geopolitical realities, and we are actually seeing some divergence from that fundamental principle of the modern trade system which would suggest production should happen with the most economically efficient.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
In the UK, trade policy does not adequately reflect domestic Net Zero ambitions. Our witnesses felt that the UK had not effectively considered the environment in trade deals and that it did not holistically address the environmental aspects of trade.
“ I think we haven’t really seen a clear vision on what green trade is from Kemi Badenoch, current Trade Secretary, instead I think we’ve seen the Government looking again back to its original priorities, diving ahead in terms of CPTPP accession, the India trade deal and increasingly I think we’re going to see with the Gulf Cooperation Council as well, essentially side-lining green criteria in terms of going for those higher goals that I mentioned before, and each of those in order I would say increasingly at odds with the UK’s Net Zero transition at home.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
“ Does the UK take a holistic view of the emissions caused by trade? The short answer is no. And to be fair, with the exception of one possible exception which is Sweden, I don’t think any other countries globally do.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
Currently, calculations of emissions do not include trade or consumption-based emissions. This exclusion significantly hampers any attempt to make trade aligned with Net Zero aims, as it lacks transparency and prevents accountability. Making this shift to include trade and consumption emissions in overall emissions calculations is an opportunity for the UK to set a world-leading green trade precedent.
“ I would say that one of the big sticking points, one of the big elephants in the room around trade is the aviation and shipping is not really included in anybody’s calculations of emissions”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
“ The UK’s consumption emissions footprint for instance would be 40% higher than is currently stated on the territorial basis if we account for all of the consumption-based emissions, so including our imports. And I would say excitingly in this space the UK’s Committee on Climate Change, the CCC, is now starting to consider consumption emissions in the context of its next carbon budgets process for the UK, for setting the UK’s future climate targets. And we know that the UK’s 2008 Climate Change Act and its carbon budgets process is truly World leading and has done a lot I think to set the agenda globally in terms of how other countries have then followed and I think there’s a lot of potential for the UK to start using this framework to increasingly start incorporating consumption based emissions accounting under this framework to then set a bit more of a precedent globally for other countries to follow.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
If the UK Government changed the methodology in trade deal impact assessments to consider consumption emissions, there could be more effective scrutiny on the environmental implications of trade deals.
“ One way in which an increased consumption based emissions focus could be really useful would be in the context of impact assessments for trade deals, so if we could have more of a robust view of how a proposed trade deal would impact on the UK’s consumption based emissions footprint, we could then have a much clearer sense of the impacts and their methods that we can take to then address these impacts.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
Our witnesses stressed that implementing environmentally-conscious trade policy required the UK to work closely with trading partners to set and achieve ambitious emissions reduction targets and reduce carbon leakage.
“ I don’t think that the World Trade system supports a transition at the moment and there’s an element of World leaders needing to think about this in the collaborative sense of ‘it’s a shared global challenge that we all need to get to’.”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
CBAM AND ETS
As more and more countries are raising their ambition on climate action, policymakers have been warned that unilateral climate policies may increase the risk of ‘carbon leakage’. This occurs when production shifts offshore to countries with less stringent climate policies and puts domestic production at risk of being undercut by imports. Climate policy asymmetries reduce business confidence in making decarbonisation investments and can undermine climate ambitions globally.
Therefore, Carbon Border Adjustment Mechanisms, known as CBAMs, play a key role in controlling carbon leakage by implementing a carbon levy on imported goods.
CBAMs have two purposes: to prevent carbon leakage and to preserve industrial competitiveness as industry decarbonises.
“ I think it’s really important to recognise that the key objective of these types of broader carbon adjustments is primarily preventing carbon leakage, this is the mission number one. Mission number two is preserving industrial competitiveness.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
“ At the end of the day, this type of adjustment is about what exactly you’re implementing domestically and what can be considered to be equivalent to what is currently implemented in Europe or in the UK.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
The European Union CBAM requires importers of goods to pay for a digital certificate for each tonne of carbon emissions embedded in the goods they are importing. The mechanism is designed to discourage the import of carbonintensive goods, level the playing field for businesses decarbonising domestically, and encourage EU importers to change their production methods to low-carbon alternatives to remain competitive suppliers to the Single Market.
The EU CBAM began its transitional phase in October 2023 and will be fully implemented by 2034, when all allowances for embedded carbon will be phased out. After this point, importers will need to make a full annual report of the embedded carbon in all their imported goods according to EU methodology and purchase a corresponding number of carbon certificates. The scope of products subject to EU CBAM rules will be reviewed and expanded during the transition period.
“What the EU CBAM is trying to ensure is that foreign producers pay a price per tonne of CO2 emissions that is equivalent to what a similar position EU producer would pay.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
As part of the report Trading our way to Prosperity: a Blueprint for Policymakers, the UK Trade and Business Commission recommended that the UK should design and implement a carbon border adjustment mechanism that aligns with the EU’s. In order to do this, the UK should work with the EU to establish a formal link between the UK Emissions Trading Scheme (ETS) and the EU Emissions Trading Scheme. Enabling mutual recognition of trading allowances between the two systems, and increasing the dialogue and cooperation with the EU on the ETS and both CBAMs, will allow the UK to address emerging challenges and opportunities while protecting businesses and decarbonisation goals.
While the UK Government has consulted on the introduction of a CBAM, there have been no policy announcements made. It has been reported that the UK is considering the introduction of a UK CBAM scheme in 2026, but details of the proposals are limited .
As the EU is the closest trading partner of the UK, phasing in the EU CBAM will have a significant impact on UK businesses. UK businesses that export to the EU will have to keep up with the demands of the mechanism, something which our witnesses expressed is causing uncertainty and concern.
“ Until July of next year, the EU will allow companies to use simplified methodologies to calculate embedded emissions but after July of next year the more complex full implementation of the reporting methodologies will take place and companies will be expected to be up to speed with all of the EU’s expectations.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
“Working with companies, again only at this early stage of CBAM where it’s just reporting obligations, a lot of firms are not going to have the in-house capacity to either calculate the emissions themselves or to engage with their suppliers upstream in their supply chain in order to get those suppliers to report emissions accurately along the lines of the EU methodologies. So there’s going to be a lot of using outside consultants, hiring additional people to understand your emissions in your supply chain and so I don’t know exactly what the costs would be, but having seen these methodologies it is complex, there will need to be lawyers involved, there will need to be engineers involved to look at the facilities, and a lot of companies, whether they’re in the EU or in EU trade markets, do not have the capacity to collect the data in the way that they’ll need to right now.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
While UK businesses grapple with these changes, the question remains whether the UK will introduce its own CBAM and how it will navigate divergence with the EU. Without clarity around the future of trade and carbon pricing, businesses in the UK are left with uncertainty.
To support domestic businesses to decarbonise and prevent placing them at a competitive disadvantage, the UK must develop a clear transition plan that includes an effective CBAM that maintains alignment with the EU mechanism. Our witnesses made it clear how important confronting both a carbon border adjustment mechanism and improving the UK ETS was to support businesses.
“I think it is also important for the UK to develop a clear transition plan that outlines our intent to either integrate or design our own CBAM or integrate the CBAM into the existing ETS or even start a negotiation or a consideration of linking.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
“In terms of confirming the Government’s position, I think that an important step to take regarding CBAM is actually to sort out the UK emissions trading scheme first. The EU CBAM is there to enable the proper functioning of the EU ETS, so if the EU CBAM can ensure that EU firms won’t be at a competitive disadvantage due to the costs paid under the EU ETS, the EU can stop providing regulated companies with a huge proportion of their emissions trading allowances for free, which is currently what happens for most firms outside the power sector. And giving free allowances out fundamentally undermines the point of the mechanism which is to price emissions. And so, the UK I think in order to confirm its position relating to a CBAM really needs to have a timeline for the phase-out of allocations under the UK ETS because without that you can’t really provide much certainty about how a domestic CBAM would work.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
“Given this inter-twined nature of the UK and the European economies, and also the potential implications of a European CBAM, I think it would be prudent of the UK to consider a UK version of a CBAM as aligned as possible to the European CBAM. I believe that this alignment would help control potential market distortion and crucially, it will also simply compliance work for companies directly operating in both regions.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
CASE STUDY – CEMEX
CEMEX is the biggest Mexican investor in the UK, employing more than 2,000 people across 200 sites nationwide. CEMEX is a global leader in cement manufacturing who generate approximately £775 million in annual sales.
The UK Trade and Business Commission visited CEMEX’s Rugby cement plant to discuss their transition to Net Zero. At the plant, the Commission heard how the absence of clarity on a UK CBAM and the separate directions of the UK and EU ETS is impacting their operations.
As a multinational business looking to decarbonise, CEMEX wants to see alignment between the UK and EU carbon border mechanisms in order to remove the threat of divergence and ensure firms in the UK are not at a competitive disadvantage. This would encourage decarbonisation of their industry while preventing new and unnecessary costs and delays.
They also expressed the importance of aligning the UK and EU ETS systems in order to ensure carbon prices are equivalent and suggested ways the UK Government could reform its ETS scheme to remove inhibitors to carbon capture accounting systems.
Companies have noted that the UK Government’s approach to industry decarbonisation has been too siloed and there has been a lack of practical and political support in the UK in comparison to the US and Europe.
The infrastructure and regulatory framework has been an inhibitor to faster decarbonisation in the UK factory. The lack of grid capacity, reformed carbon capture regulation, and a proactive strategic approach to research and innovation, has made reaching Net Zero more challenging. While CEMEX has the knowledge and technology to decarbonise, these factors are preventing a transition at the pace and scale of non-UK factories. Demonstrating this, CEMEX’s new Carbon Capture, Utilisation, and Storage pilots are operating in eight cement plants, none of which in the UK.
These factors not only impact the speed of decarbonisation but also raise questions about the attractiveness of the UK for green investment. If the UK does not restore confidence in its decarbonisation aims, it will lose out on market share, research and innovation opportunities, and be unable to maintain manufacturing capacity at this pivotal time for green technology.
Cement may be a hard-to-abate industry, but CEMEX believes they must abate. To do so effectively, they need the UK Government to develop a more strategic and collaborative approach to industrial strategy, decarbonisation, and international trade. With the discussion of a CBAM becoming more prominent, it is clear that there is a package of strategic and practical policy the UK Government can put in place to advance industrial competitiveness and decarbonisation in the UK.
“The lack of a common carbon adjustment system with the UK’s largest market disincentives investment needed for decarbonisation, while the threat of further divergence could put firms based here at a competitive disadvantage due to increased costs and other compliance requirements.“
“By pledging to align our CBAM with the EU’s, the government will unlock the green potential, restoring the competitiveness of UK industry and putting itself in a position where it can continue to lead on combating climate change.”
MARTIN CASEY, DIRECTOR PUBLIC AFFAIRS, COMMUNICATIONS & SOCIAL IMPACT FOR CEMEX EMEA
Without a UK CBAM and aligned UK-EU ETS carbon pricing, the UK could become a sink for products produced with higher carbon content than might be acceptable under the EU CBAM. Industries attempting to reach Net Zero are likely to find that the systems and structures in place that ought to help them do that are not robust enough and important investments might not be made.
If the UK develops a UK CBAM scheme that does not align with the EU’s, it will likely cause administrative reporting and monitoring requirements to differ- creating significant challenges for businesses.
While it is possible to proceed with a UK CBAM without linking the UK and EU ETS, this could limit its effectiveness.
“If the UK does decide to implement its own system, and if any of the data collection formats or if any of the emissions calculation methods are different to the EU, they diverge in any way, this is going to impose a significant burden on any firms that are importing from or exporting to the EU. And so, from that perspective, alignment would actually be quite a positive thing, just so that there isn’t this massively divergent international system of different CBAM mechanisms. There’s a huge amount that companies are having to do.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
“I think that from a technical standpoint, the UK can indeed introduce its own carbon border adjustment mechanism, independently without actually linking with the EU ETS. However, the question is about visibility and effectiveness of such a UK CBAM, is closely tied to the way border adjustments are calculated or will be calculated in the future. So that very much depends on the price differential. So just to give you an example, suppose that again we are in 2026 and we are in a situation where the UK ETS has a lower primary price than the European Emission Trading System, basically today that’s the situation. Any UK CBAM would likely be constrained by the price levels that we have within the UK ETS, this is to remain competitive and comply with the WTO. So, you cannot actually charge something that is higher than the price that you face in the UK. So, any form of adjustment I believe will require some minimum level of alignment between the two systems, so between the UK ETS and European ETS in order to have an operating UK CBAM.”
LUCA TASCHINI, PROFESSOR, UNIVERSITY OF EDINBURGH BUSINESS SCHOOL
“What we’re seeing from our members is that having to operate in multiple jurisdictions around the World and having different requirements can be really challenging.”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
Our witnesses highlighted that divergence has already taken place between the UK and EU ETS, concluding that it would be impractical to assume a minimum level of alignment between the two systems would be maintained without efforts to link them.
“There’s really no evidence that the UK would be far more ambitious than the EU would want to be. The EU price is far higher than the UK one at the moment, the EU is on track to stop giving out free emissions allowances before the UK, and the EU is also on track to add additional sectors to the ETS before the UK is. So, I would just want to make sure that anyone making this point about the UK being able to go further, I’d just want to make sure they were making that point in good faith.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
The UK has the opportunity to learn from the implementation of the EU CBAM and ensure that the UK CBAM is developed as effectively to support UK businesses.
“The UK is somewhat behind the EU in terms of ambition when it comes to carbon pricing, but I think this is definitely a case in which being a follower comes with opportunities and I don’t think the UK Government should waste this opportunity to see what’s happening with the EU and how either if we’re linking or we’re saying we’re going with our own system, how we can ensure that it is better, more effective and easier on businesses going forwards.”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
“ Use this consultation process to properly understand industry, the companies that are going to be affected by CBAM. Understand what it will mean for businesses in terms of the reporting obligations, the potential financial costs, and the ways in which the Government can potentially lighten the load, either with a different policy design or with technical assistance down the line”
CHIMDI OBIENU, RESEARCH CONSULTANT, CARBON ECONOMY, ECOACT
DEVELOPING COUNTRIES AND CBAM
While the benefits of aligning the global trade system with global climate goals has been widely discussed, the impact of Net Zero policies, such as CBAM, on developing countries is gaining salience.
Research by the London School of Economics found that several African least developed countries (LDCs) were among the most impacted by the application of the CBAM, with modelling suggesting that Africa could lose up to $35 billion per year as a direct result. Our witnesses highlighted that developing countries have been critical of the EU CBAM.
“Many developing countries are very critical about the way that the EU CBAM is being introduced, you know green protection has been talked about, and I think if the UK were to go down the route of saying yes we’re going further, we’re going to have a more stringent regime then it would really need to ensure that it was having a good diplomatic dialogue with affected countries, particularly developing countries, to explain why they were taking this approach and how it linked into their other policies around climate change and as we’ve just been hearing bringing our own house in order on the ETS is an area where we might look if we were taking that approach as the UK, we might look that we don’t have our house in order.”
LAURA KELLY, DIRECTOR, SHAPING SUSTAINABLE MARKETS, INTERNATIONAL INSTITUTE FOR ENVIRONMENT AND DEVELOPMENT
There have been suggestions that, if deemed necessary, the UK Government could consider an exemption for LDCs and vulnerable economies or use CBAM revenue to support the decarbonisation of LDCs’ manufacturing industries. The UK already has a trade system that permits zero tariffs for LDCs, and enables tariff exemptions on a product by product basis.
Requiring developing nations to pay a carbon levy in order to access key markets could prevent them from making decarbonisation investments in the most effective ways and slow their economic development. There has also been concern that recycling CBAM revenue as aid could be problematic if it is not done effectively. While there is recognition that it is a complex picture, with a variety of historical, economic, and environmental factors at play, it is clear that the UK has a responsibility to bring developing countries along the journey of decarbonisation.
“I think the first thing particularly coming from the perspective of the least developed countries and climate vulnerable countries is that the revenues that are collected at the border related to their exports, their imports into the EU [sic] should be invested in supporting their green economic just transitions, so that’s important particularly when we’re looking at the cost of addressing climate change being far beyond what domestic revenues or aid are going to provide and leveraging private finances is a big part of the debate. Something like this is not going to provide huge resources but anything that does help that actually helps to ensure that countries could spend on health, education and social spending.”
LAURA KELLY, DIRECTOR, SHAPING SUSTAINABLE MARKETS, INTERNATIONAL INSTITUTE FOR ENVIRONMENT AND DEVELOPMENT
“The sort of club approach in other areas of leading countries who wanted to come together and do things, again tends to send alarm bells to countries in the global south with concerns around green protections or trying to go further faster alone and then leaving countries behind.”
LAURA KELLY, DIRECTOR, SHAPING SUSTAINABLE MARKETS, INTERNATIONAL INSTITUTE FOR ENVIRONMENT AND DEVELOPMENT
Through inclusive international dialogue and effective climate leadership, the UK can ensure it implements a fair and equitable trade policy system.
“ We should have inclusive international dialogue and support for developing countries’ ability to compete in international trade in a Net Zero world and that’s just in recognition of developed countries, historical responsibility and global emissions, and the UK actually has a moral responsibility to use its voice and its historically strong diplomatic skills in international forums to work towards that fairer outcomes internationally.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ There’s a really difficult balance between the ability to support developing markets to build their own infrastructure for Net Zero and to do things in a way that helps us to meet our targets, as well as thinking about how we create new opportunities for people in the UK.”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
“ The UK has historically been a leader on trade and development issues and in its thinking about development of this ETS and CBAM, it should really try to ensure that it maintains that integrity and implementing its environmental policies it thinks about the development implications of that.”
LAURA KELLY, DIRECTOR, SHAPING SUSTAINABLE MARKETS, INTERNATIONAL INSTITUTE FOR ENVIRONMENT AND DEVELOPMENT
“ How do world leaders in political, a business, in civil society do that and come together so that we can both have a just transition that means we are getting to Net Zero, we’re building resilience and we’re lifting people out of poverty as a result of the transition, because it feels a bit like at the moment there’s an assertion being made that we can’t do both and I think we can.”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
GREEN GROWTH OPPORTUNITIES AND STABILITY
Without adequate steps to align trade policy with Net Zero ambition, trade emissions and environmental standards of imports will undermine domestic decarbonisation. Additionally, without seizing the opportunities of decarbonisation, the UK will miss out on vital investments necessary to meet Net Zero goals.
Our witnesses stressed the importance of the UK Government confronting this challenge now to prevent added complications and costs that will come with delaying action. Frontloading investment, building the UK's green energy and manufacturing capacity, and developing the skills needed for a green, clean energy future will help ensure that the UK can achieve its ambitions.
“ The UK has a legal commitment to deliver Net Zero emissions unless we see a change in law and so it can either choose to do this in a slow way, it can delay action as much as possible and very likely face a much higher bill further down the line because it would have failed to bring technology costs down earlier on, it will elongate its dependence on oil and gas and it would make itself vulnerable to increasing damages from climate change. Alternatively, the UK can choose to deliver Net Zero in a proactive way as set in this question, that would mean frontloading investment, crowding in investment to build supply chains here in the UK of the technologies of the future and that would be the way to unlock export opportunities, regional benefits and jobs along the way that the UK delivers Net Zero.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ There’s no White Paper for how we’re going to get to Net Zero and how we’re going to align these trading and tackling the climate emergency in a fair way. So the key thing that we hear is that business leaders need clarity on the journey, and they’re very keen to be able to work across their global operations to make things happen with their suppliers.”
GUDRUN CARTWRIGHT, CLIMATE ACTION DIRECTOR, BUSINESS IN THE COMMUNITY
In light of the USA’s Inflation Reduction Act and the EU’s Green Deal, the pressure is on to lead green industries. The UK Government needs to take care in ensuring that it proves to businesses and investors that it is committed to its climate goals – and offer an industrial strategy that makes investment opportunities attractive.
“ I think particularly in the wake of the Inflation Reduction Act in the United States and the European Union’s responses, the competitiveness dimension of green trade is rising to the top of political agendas worldwide, but it’s notable that that’s not really the case in the UK at the moment, and the UK is failing I think to come up with an adequate response to the rise of industrial strategy globally. I think this is where we kind of need to see an evolution in the UK’s thinking in this space in terms of how we talk about green trades.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
“ The Government should think really proactively about how benefits of international trade can contribute to a wider set of domestic economic objectives and in particular addressing regional disparities, some inspiration from the Inflation Reduction Act could be taken on that to just tie in provisions to support local communities and the development of skills locally.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
To explore an example of this, the Commission asked its witnesses to provide evidence of the current state of play in the car industry. The competition is on to competitively grow electric car manufacturing capacity across the world, however, a lack of political and practical support has left the UK falling behind other countries.
“ As we know Net Zero means an economy-wide technological transformation and that means incumbent fossil fuel-based technologies will need to be replaced really fast by low carbon technologies at a massive scale, and just as an illustration the International Energy Agency forecasted that global electric car sales will grow 18-fold by the end of this decade. Of course, that kind of export opportunity is not just the UK, many countries are already thinking about both getting their hands on enough of these technologies to deliver their domestic emissions reduction targets, but also which of these technologies they can produce competitively to capture growth opportunities from these growing export markets.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ So far the UK has been late in the game to try and capture the opportunities from the transition to electric vehicles and as you’ve also pointed out already the UK car manufacturing as a whole was already on a decline since 2016, so it’s a post-Brexit related issue than it dates prior to the increased explicit climate related support for EVs from international competitors like the US and the EU, like sure the Inflation Reduction Act is going to have an effect, but it was an ongoing issue anyway for the UK’s automotive industry.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
The car industry is suffering from a lack of certainty and confidence in the UK Government’s decarbonisation strategy. International cooperation has an important role to play in securing access to critical materials and ensuring the UK remains part of the European supply chain.
“ In terms of the viability of the sector long-term, there appears to be one clear action that’s needed and that’s long-term certainty for business to invest in the future EV industry in the UK and that needs to include proactive thinking about the resilience of supply chains, especially when it comes to critical products like batteries and that’s going to be about stronger international cooperation and also actions to enable smoother trade with trading partners and special effort to remain part of the European supply chains.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
Reflecting on recent announcements from the UK Government that the phase-out of the sale of petrol and diesel cars would be pushed back to 2035, witnesses were critical of U-turns on key green measures. Delays and policy U-turns drive up the cost of decarbonising and damage the UK’s reputation internationally. Without confidence in the policies put forward, businesses will be reluctant to invest in greening their operations.
“ It’s also really hard not to comment on the Prime Minister’s recent speech in this question, so that kind of delay to the phase out of the sale of petrol or diesel cars from 2030 to 2035, this kind of watering down of well-established targets is a real threat to business confidence and appetite to invest in the UK, and while we should absolutely aim to deliver the Net Zero transitioning of fair way, allowing consumers to buy a petrol vehicle post-2030 does not actually help with the Cost of Living Crisis today, and it probably doesn’t even change how fast EVs will be adopted in the UK, because the costs of changing in favour of EVs over petrol vehicles anyway both in terms of upfront and operational costs, and then the Government is also keeping the zero emission vehicle mandate in place, so the manufacturers are going to have to transition their fleets towards EVs anyway, so I can’t really see any clear benefits either for consumers or industry from this kind of diluting the demand side signal, it will just likely make it harder for the UK to capture the industrial and export opportunities from the transition to EVs.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ I would say for long-term viability this kind of start-stop approach should absolutely be avoided.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ Just to address the really negative impacts of the Prime Minister’s recent back-sliding on the phase-out date for new petrol and diesel vehicles, but the strength of pushback from the automotive sector itself shows what a blow this is to investor confidence when the UK could otherwise be more forward-leaning in the transition to electric vehicles”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
“ In this new world of industrial policy we’ve seen the US Inflation Reduction Act, the EU’s response, Chinese competition, the UK’s competitive asset in this space was its stable policy environment basically underpinned by cross-party political support for the transition, and frankly recent moves by the Prime Minister has sabotaged this at a time when international investors are still sceptical about investment following his predecessor’s mini budget.”
JONNY PETERS, SENIOR POLICY ADVISOR, E3G
To provide more certainty and confidence to businesses, our witnesses highlighted that the UK Government should harmonise decarbonisation strategies into overall industrial strategy and be proactive in seeking opportunities for how trade can support the Net Zero agenda.
“ The UK really needs to work to reinstate its position as a global leader on climate action and use that position to get other countries on board under this ambition to fully align international trade with Net Zero because recently we’ve seen the UK losing credibility in the international arena about how ambitious and serious it is on climate action and it will need to work really hard to restore that position.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE
“ Perhaps more importantly all of these need to be woven into an overall industrial strategy that can outlive political cycles and that would be what maximises certainty for businesses, which are having to make these long-term investment decisions to be able to exist in a Net Zero world in the UK.”
ESIN SERIN, POLICY FELLOW, GRANTHAM RESEARCH INSTITUTE, LSE