European Regulatory Approaches to Preventing Carbon Leakage: Rolling Back Johnson’s EU ‘Diplomacy’ for a Brighter Environmental Future

Abstract

Further to the EU carbon regulatory framework, particularly the EU Emissions Trading Scheme and the EU Carbon Border Adjustment Mechanism (CBAM), this legal and related implementation research addresses the regulatory future of carbon leakage prevention within the UK industrial sector. Carbon leakage from other countries or sectors will not be addressed. Further, the UK ETS will be the central regulatory mechanism from which carbon leakage will be considered while other avenues will not be addressed. The scope will be narrowed further for a case study, which explores the regulatory scenario in the context of the UK cement industry as a demonstration of a regulatory scenario in action. To the best of the authors’ knowledge, no research currently explores future prevention of carbon leakage in the UK ETS with specific qualitative analysis of the UK cement industry. This research is designed to fill this gap. This research also identifies and analyses the regulatory options available to prevent carbon leakage in the UK ETS for the UK industrial sector, to guide future regulatory strategy with continuing EU regulatory alignment in mind, at least as a means of Brexit damage control limitation noting that Johnsonian Anti-EU diplomacy needs to be reversed in the UK environmental and economic interest. Among the objectives of the research, we review and critique the evidence base for carbon regulatory leakage within the UK’s industrial sector, and the historical and current regulatory strategies to avoid it. We analyse how a particular regulatory scenario may apply to the UK cement industry, and how the industry may be affected by the implementation of this regulatory scenario. Interviews with key experts and stakeholders were conducted in order to reinforce and validate the literature and case study analysis. After an Introduction (section I), the research design is explained and justified in methodological terms (section II). Then we conduct a literature analysis to address the phenomenon of carbon leakage in its current and historical context (section III). A regulatory scenario is developed and presented in section IV to understand CBAM implementation challenges. In section V we conduct a case study of CBAM and the cement industry to further explore the regulatory scenario. Section VI, the Discussion section addresses semi-structured interview responses which are thematically analysed alongside findings from previous sections. Finally, we conclude with remarks about key findings, limitations and future research opportunities. In summation, if the UK hopes to meet its ambitious climate goals, an updated carbon leakage strategy is required to mitigate this. The UK should immediately consider how it wishes to align with the EU ETS on these regulatory matters. Experts across sectors agreed that pursuing linkage of the UK ETS with the EU ETS and implementing a similar CBAM would benefit the UK. If this is the regulatory future of choice, alignment of current regulatory strategy with this goal is required sooner rather than later. Emissions Trading, Regulation, EU ETS, UK ETS, Carbon Border Adjustment Mechanism, European Union, United Kingdom