G7 Trade Ministerial is chance for UK to lead on tackling carbon leakage

G7 Trade Ministers’ Meeting is opportunity for UK to take lead on tackling carbon leakage

In a new paper, the Council on Geostrategy has called for the UK government to take the lead on a new multilateral effort to tackle carbon leakage and prevent unilateral EU proposals from inflaming relations with low and middle income countries.

Carbon leakage – the shifting of carbon intensive manufacturing to jurisdictions with lower environmental standards – is expected to be a feature of the next phase of decarbonisation, that of heavy industry.  Carbon border taxes, otherwise known as Carbon Border Adjustment Mechanisms (CBAMs), are being planned by the European Union (EU) to pre-empt this and protect its own industries. However, the consequences of this unilateral action have not been well considered.


According to the paper, there are several reasons for Britain to take a lead on carbon leakage: 

  • The EU’s proposals, due in July, risk inflaming relations with low and middle income countries, including those expected to suffer most from climate change and those already suffering unduly from the pandemic, undermining the high profile UK lead COP26 negotiations due to conclude in November.
  • Should Britain ignore or soft pedal on the issue of carbon leakage and carbon border taxes the EU has the chance to bolster its aspirations to be a global standards setter on climate and trade policy eroding the government’s goal of upholding British sovereignty.
  • The UK Government has committed to “level-up” the country, including strengthening the position of previously left behind regions, often those with a heavy manufacturing base.  If these industries suffer in the next phase of decarbonisation, and the government is not seen to be delivering for these regions, it’s electoral coalition will be undermined.

The alternative recommended by this paper is for Britain to lead a multilateral approach, designing a system that would both channel the interest for CBAMs amongst developed countries while directing Official Development Assistance (ODA) towards developing countries, helping them to reduce their carbon emissions.

To accomplish this the UK would need to take advantage of its substantial diplomatic network as well as platforms such as the G7, G20 and COP26 to gain support from a wide range of global partners such as the US, Japan, Canada, Australia and many more, including the Commonwealth and EU. With these countries, the UK would need to come to a high level agreement to establish the principles and a process by which methodologies can be defined and trade barriers (or exemptions) placed upon a range of carbon-intensive goods including measures to aid low-income countries to adapt to low carbon production.


William Young, William Stanley Jevons Associate Fellow in Environmental Security at the Council on Geostrategy, said:

“In 2021, Britain has an important opportunity to ensure domestic manufacturers are well positioned in the race to net zero, whilst supercharging international negotiations to cut global carbon emissions.”

“At the ongoing G7 Trade Ministers’ Meeting, the forthcoming G20 summits and COP26 later this year, carbon leakage will be discussed and carbon border adjustments debated.  Ministers should be considering how trade, product standards and collaboration with allies can drive decarbonisation of key heavy industries, protect domestic industry and simultaneously strengthen the open international order.”