Most people have never heard of the Carbon Border Adjustment Mechanism. That is exactly how new taxes get through. From January 2027, the UK will apply an additional import tariff on iron and steel, aluminium, cement, fertiliser and hydrogen, calculated on the greenhouse gas emissions produced when the goods were made. Unlike conventional tariffs, there are no plans to exempt essential imports.
The video above, illustrated and animated by Josh, distils the argument of a new paper by the economist Catherine McBride for the Global Warming Policy Foundation. Her conclusion is blunt: CBAM is not about the environment. It is just another tax, and one that arrives decades too late to do the job claimed for it.
An own goal, then a second one
The logic behind CBAM is that Britain’s own carbon taxes made domestic manufacturing uncompetitive, so imports should now be taxed to level the field. McBride’s point is that the sequence matters. The Climate Change Levy arrived in 2001, the Emissions Trading Scheme in 2005, the Carbon Price Support in 2013. For twenty-odd years, UK manufacturers paid carbon taxes that their overseas competitors did not, while facing energy costs inflated by the same policies. The predictable happened: industry moved offshore or shut down, and Britain imported the products, and the emissions, instead.
If there was ever a moment to tax the carbon content of imports, it was the moment domestic producers were first taxed. Introducing the border tax now, after the horses have bolted, does not bring the stables back. Britain no longer produces fertiliser ingredients such as ammonia and nitric acid at all. Domestic aluminium production meets roughly 5 per cent of UK demand. Primary steel output has fallen below 2 million tonnes. There is very little left to protect.
Who actually pays
With few competitive domestic producers remaining, CBAM does not shield British industry. It raises input costs for the downstream manufacturers Britain still has. Car makers and aerospace suppliers must absorb dearer steel and aluminium while competing internationally against firms in countries with cheap coal and no carbon taxes. Farmers will pay more for imported fertiliser and pass the cost down the food chain to consumers.
The design compounds the problem. The UK CBAM only equalises the ETS charge, not the Climate Change Levy or Carbon Price Support that domestic producers also pay. Complex manufactured products are excluded entirely, because tracing the emissions of components made across multiple countries is too difficult, so a firm importing finished goods escapes the tax that its British rival pays on raw materials. And every importer of CBAM goods must monitor and record them, even if only to prove to HMRC that they fall below the £50,000 threshold.
A tariff designed to correct a distortion created by carbon taxes ends up creating a new distortion of its own: higher manufacturing costs, and more reasons to make things somewhere else.
A better idea
McBride’s alternative is to stop reaching for the tax lever altogether. If the goal is lower emissions from the industry Britain still has, tax deductions for firms that invest in making their UK facilities more efficient would do more good than another levy at the border. Carrots, not sticks, as the paper puts it.
The video runs through all of this in a few minutes of pen and ink. Watch it, share it, and then read the full paper and Catherine McBride’s own summary of the argument.
