Trades Union Congress                                                                      CBM0024

Written evidence from the Trades Union Congress

Background

The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together more than 5.5 million working people who make up our 48 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living.

We welcome the opportunity to comment on the Carbon Border Adjustment Mechanism, as a possible pathway to ensuring that greenhouse gas emissions, production, and jobs are not offshored from the UK during the transition to a green economy. In formulating this response, we have consulted affiliated trade unions who represent workers in relevant sectors, including manufacturing, energy, public services and transport.

         What are the risks to the UK posed by carbon leakage? How effective is the Government’s current approach to tackling carbon leakage?

The TUC estimates that up to 660,000 jobs in UK manufacturing and supply chains depend on the industries most exposed to carbon leakage.[1] Businesses could choose to relocate production – and the financial sector could choose to invest – into places where high-emissions activities carry less of an additional cost due to climate policy.

The industries with most jobs at stake are: iron and steel (26 – 34 thousand direct jobs), glass and ceramics (25 – 41 thousand direct jobs) and chemicals (20 – 63 thousand jobs). See Table 1.

Table 1. Estimates of jobs at risk by industry

Crucially, jobs and production could also be offshored to places where there is better government support (including policy and public investment) for decarbonising industries. For example, automotive parts manufacturers are entering a period of intense international competition to determine where Electric Vehicle components will be made in the future.[2]

This points to the need for any Carbon Border Adjustment Mechanism to be complemented with proactive measures to support high-carbon industries to shift to net-zero carbon business models. In our analysis, since the start of the pandemic the UK government has invested less (per resident or per unit of GDP) in green infrastructure and decarbonising industry than any other G7 country bar Japan.[3] This investment gap must be levelled up to protect UK industries and jobs against offshoring.

Government should also review the compatibility of other international arrangements with its climate targets and the goals of its Net Zero Strategy. In particular, the TUC is calling for:

- all trade deals to contain effective enforcement mechanisms for commitments under the Paris Agreement;

- trade deals to not contain Investor State Dispute Settlement mechanisms which would allow polluting companies to sue governments for policies that seek to restrict carbon emissions;

- ensuring the UK’s Trade Remedies system includes environmental criteria for unfair trade practice.

         Should the Government pursue a unilateral CBAM? If so, why and what form should this take? If not, are there alternative approaches to addressing carbon leakage which the Government should be considering?

If possible, a multilateral solution should be pursued to avoid disadvantaging some countries or industries over others, and ensure a voice and representation for Global South countries and peoples most impacted by climate change in the formulation of international climate policies.

However, in the absence of a broader multilateral solution, there is a strong argument for a CBAM aligned with the European Union’s scheme and other comparable schemes.  However, government should consider exempting low income countries from a CBAM scheme to prevent penalising countries that have historically contributed the least to climate emissions..

         What impact might a CBAM have on UK (i) industry, (ii) employment and (iii) consumers?

(i) and (ii): A CBAM could have positive impacts for UK manufacturing industries, where in the past production has been offshored to other countries due in part to cutting costs thanks to lower environmental and labour rights standards. A CBAM would counteract the ‘pollution haven’ effect, as examined by a recent OECD study: “The recent evidence supports the existence of a pollution haven effect, with imports of pollution- or energy-intensive goods increasing in response to tighter regulation,” in some pollution- or energy-intensive industries.[4]

It is possible that a CBAM would impact on the flows of goods and therefore on transport and logistics industries and jobs. The impacts on transport industries, in particular freight, are not well understood yet and should be examined.

(iii): If CBAM covers the import of electricity, and if the additional costs imposed by CBAM are passed down to consumers, there is a risk that it would exacerbate fuel poverty. Any CBAM scheme must be designed with a view to protecting households in or at risk of fuel poverty.

• What risks would need to be managed when designing and implementing a CBAM?

As above, the risks of rising energy bills to consumers, and any risks to transport industries and jobs must be researched and managed.

• What wider opportunities and benefits might arise from introducing a CBAM?

A CBAM could encourage shorter supply chains with greater domestic content, which would help to both lower transport-related carbon emissions, and manage global supply chain risks.[5]

Depending on its design, a CBAM could encourage domestic investment, including in energy infrastructure projects that will be crucial to meeting net zero targets and safeguarding energy supply.

In order to capture the full benefits of a CBAM, the UK should consider how the funds raised through a CBAM are used. In the case of a carbon tax implemented in British Columbia, Canada, econometric analysis by OECD researchers found that this had a positive effect on employment, thanks to the redistribution of tax revenues.[6]

• How might a CBAM interact with the UK’s international obligations, including on trade and the environment?

The discussion of carbon prices should be a global one, not only confined to bilateral relationships with European or other major partners.

Following introduction, a CBAM scheme could also be subject to challenge under the WTO treaties, although the EU maintains that its proposed CBAM is compliant with WTO rules. The Government should undertake and publish its own assurance work on the compatibility of CBAM with current WTO rules. The Government should also support wider reforms to the WTO treaties to increase the transparency in WTO negotiations, and to allow for structured flexibility for domestic industrial interventions on social and environmental grounds.

         What practical and administrative challenges might arise when designing and implementing a CBAM? How might these be addressed?

The UK CBAM must be compatible with the EU CBAM to prevent any discrepancies between trade regimes between Northern Ireland and the Republic of Ireland which has significant risks for the economy and communities in Northern Ireland which could undermine the Good Friday Agreement.

For more information: Please contact Anna Markova

October 2021