The Treasury is today reported to be plotting a new tax on imports from countries with high carbon emissions in a move to protect British industry.
The Telegraph states that ministers are considering bringing in a carbon border levy to make sure UK businesses who face high domestic carbon costs are not undercut by cheap imports.
Products affected are initially likely to include raw materials such as steel, but the tax could eventually be extended to the likes of cars and refrigerators - ultimately driving up bills for consumers.
There are concerns that British manufacturers will shift jobs to more-lenient countries abroad rather than decarbonise unless the levy is introduced, harming the economy as well as efforts to cut emissions.
Lucy Frazer, financial secretary to the Treasury, told Parliament that the Government will consult later this year on a "range of options" to level the playing field for UK businesses.
These include "whether measures such as product standards and a carbon border adjustment mechanism (CBAM) could be appropriate tools in the UK's policy mix".
She added: "A CBAM applies a carbon price to specified imports, in order to mitigate differences in carbon pricing between jurisdictions."
The EU is preparing to introduce the world's first carbon border tax, which will see a levy on imports of steel, aluminium, fertilisers and electricity introduced from 2026.
The proportion of the UK's emissions accounted for by imports has already risen, from about 41% in 1997 to 43% in 2018, as the country's economy shifted from a manufacturing base towards the services sector.
A carbon border tax would risk increasing bills for consumers as manufacturers pass on costs, although they would be unlikely to take effect in the UK for several years.
The tax would also bring in revenue, notes James Heywood, head of welfare and opportunity at the Centre for Policy Studies think-tank, which has backed a carbon levy.
The Telegraph reports him saying: "What really matters is not necessarily the price impact, but what is done with the revenue.
"If for example that revenue is used to cut taxes, it will offset the impact for consumers and put money back into people's pockets."
MPs on the Environmental Audit Committee recommended a shift towards a carbon border tax in a report in April, but also reported concerns that it could worsen cost-of-living pressures.
FTSE 100
The UK's top share index, the FTSE 100, was up 16 points at 7,481 shortly after opening this morning, following Monday's 46-point rise.
Brent crude futures were almost flat earlier today at $114.15 a barrel.
Companies reporting today
- Full-year results: C&C Group, DCC, Land Securities Group, Vodafone Group
- Half-year results: Britvic, Imperial Brands, Tritax EuroBox
- Trading update: Tritax EuroBox