UKPIA is calling on the government to introduce ambitious carbon policies to prevent investment vital for net zero going abroad.
According to UKPIA, the UK has higher carbon and energy costs than most competitor countries, poorer incentives to develop low carbon technologies, and a policy environment that does not offer enough investor certainty.
It said new policies are urgently needed to secure investment in decarbonisation projects and reduce the risk of increasing levels of fuel imports.
It called for a well-designed carbon levy in the form of a Carbon Border Adjustment Mechanism (CBAM), to ensure importers have equivalent costs for carbon emissions as UK manufacturers have to face.
In addition, the UK government should match the financial support offered to decarbonisation projects in the US, EU and other competitor countries.
Without a level playing field created by a well-designed carbon levy and a package of support for decarbonisation projects, investment in refineries vital to achieve the UK’s net zero targets could go to countries with weaker climate regulations – a process called “carbon leakage”.
UKPIA CEO Elizabeth de Jong said: “The UK’s refiners are vital to the UK’s plans to meet net zero by producing the low carbon liquid fuels, hydrogen and industrial carbon capture the country needs. But to invest at the scale required, they need a level playing field with countries with less stringent environmental standards or who have more financial support.
“The UK is now at risk of being left behind. Unless government introduces well designed carbon policies, investment will go abroad leading to more imports of higher carbon fuels which will increase overall global emissions.”