What are the risks to the UK posed by carbon leakage? What role could a carbon border adjustment mechanism (CBAM) play in addressing carbon leakage and meeting the UK's environmental objectives?

The risk or possibility of carbon leakage occurs when a domestic economy (e.g. the UK) increases the costs for domestic carbon-intensive producing sectors. It may increase those costs, for example, either through regulation or through taxing carbon-intensive production. One possible consequence of that increase in costs is that less production takes place in the UK and the goods are imported from countries using more carbon intensive techniques. This is carbon leakage. The risk to the UK from carbon leakage is therefore twofold: First that less production takes place domestically which may impact on domestic output and jobs. Secondly, that while the UK may be reducing its carbon footprint from *production (in line with Glasgow COP26 commitments), its consumption carbon footprint may nevertheless remain high or even grow. The carbon footprint arising from consumption refers to the carbon intensity of consumption, as opposed to production. The difference between the two is often referred to as carbon transfers, or emissions transfers.