BU Research Blog

BU research on the impact of carbon pricing has featured in a House of Commons Environmental Audit Committee (EAC) report on the role of the financial sector in helping the UK achieve net zero emissions by 2050.

A cross-faculty team comprising Dr Alan Kirkpatrick and Dr Tahani Mohamed of the Business School and Dr Festus Adedoyin of the Faculty of Science and Technology submitted written evidence which has been published as part of the report, titled The financial sector and the UK’s net zero transition. 

Their evidence included recommendations considering the economic welfare implications of carbon emissions pricing at a national and international level, and the need for carbon border adjustment mechanisms (CBAMs) that has informed the EAC’s deliberations and subsequent recommendations to the Government.

Carbon pricing systems include carbon taxes and emissions trading systems (ETSs) in which carbon credits may be bought and sold thereby creating a ‘carbon market’ which, theoretically, could help achieve a global price for carbon.

In practice, however, carbon emissions pricing systems may encourage ‘carbon leakage’ – where businesses in countries that have more stringent carbon pricing rules try to save costs by moving production activities to countries with less demanding carbon pricing rules and hence lower costs.

CBAMs are designed to reduce carbon leakage by applying charges to take account of variations in carbon prices ruling in different jurisdictions.

The BU research team discussed the risk that CBAMs might be seen as ‘climate clubs’, reducing the competitiveness of carbon-intensive emerging economies but concluded that CBAMs are necessary to minimise carbon leakage when carbon emissions pricing systems such as the UK’s Emissions Trading Scheme are implemented.

In its report the EAC has recommended that the UK Government should develop a UK CBAM. The BU research team is continuing to analyse the impact of carbon emissions pricing on wider public wellbeing in the UK.

Read the full report – The financial sector and the UK’s net zero transition