UK’s Shapps and Badenoch row over green border tax as relations sour

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LONDON — Two senior U.K. ministers are at odds over a potential new green border tax on carbon intensive imports — in a fresh sign of Cabinet tensions.

Energy Secretary Grant Shapps and his department want a carbon border adjustment mechanism (CBAM) as part of Britain’s drive to cut emissions to net-zero, while Business and Trade Secretary Kemi Badenoch is pushing in the other direction, according to people familiar with the discussions.

Shapps and Chancellor Jeremy Hunt co-announced a consultation on a U.K. carbon border tax in March, with a decision expected later this year. The tax would slap tariffs on overseas imports from places like China and India which are made by producing significant carbon emissions.

Two officials in her department said Badenoch, seen as a rising star in the Tory Party, has fought against increased tariffs at a time when the U.K’s trade levels are already faltering amid global economic headwinds and while inflation is still just below 10 percent.

The disagreement is the latest example of tension between Shapps and Badenoch, after a Whitehall shakeup in February saw Badenoch given a large chunk of Shapps’ ministerial brief.

One London lobbyist said they attended a private meeting where a junior energy minister expressed confidence that the government will bring in a CBAM, in what would be a win for Shapps and his department. The two departments declined to comment.

POLITICO spoke to four people with knowledge of the negotiations for this story. They were granted anonymity to discuss internal Whitehall deliberations.

Stepping on toes

Prime Minister Rishi Sunak rearranged the U.K. government to give Badenoch, then trade secretary, responsibility for business policy in a new Department for Business and Trade.

Shapps, who was previously in charge of business and energy policy, was made energy secretary in a new standalone Department for Energy Security and Net Zero. 

But one energy department official complained that Badenoch still controls key levers involving energy policy — like critical minerals used in electric vehicle batteries — which is making the job more difficult for Shapps.

They also launched an attack on Badenoch, accusing her of neglecting the business policy side of her new portfolio — something vehemently denied by MPs aligned with the Tory rising star.

Prime Minister Rishi Sunak rearranged the U.K. government to give Badenoch responsibility for business policy in a new Department for Business and Trade | Leon Neal/Getty Images

“The business community was really happy that [business and trade] was being combined, but now they just feel that they’re a small offshoot,” the official said. 

Allies of Badenoch, meanwhile, have made disparaging remarks about Shapps to POLITICO and mocked his insistence earlier this year that his new portfolio was evidence of a promotion.

Shapps ran for the Tory leadership last year, before becoming a key lieutenant for Sunak in his bid to become leader.

He was appointed home secretary by Liz Truss the day before she resigned as prime minister and was weeks later made business secretary by Sunak when he entered No. 10.

Badenoch, the bookmakers’ favorite to become next party leader, appears to have leapfrogged Shapps in the Cabinet pecking order, despite backing Truss for leader last year.

“Kemi has a quality about her which has allowed her in six years to become someone very strongly talked about as a future leader,” said a minister and close Badenoch ally who was granted anonymity. “That’s going to create some jealousy.”

New tax incoming?

A trade department official said Badenoch was against the idea of implementing new taxes on imported goods as it would increase prices for British consumers and would also enrage the Indian government at a time when the U.K. is holding trade negotiations with the Commonwealth nation.

However, Sunak said recently that the idea of a new carbon tax was “sensible and reasonable,” especially as the EU is bringing in its own version in October.

The decision is expected to be led by the Treasury, No. 10 and the energy department, after Shapps announced the consultation on the policy in March which will wrap next month.

Proponents of the new green tax say it is necessary to stop “carbon leakage,” which is created when British-made products emit more carbon through the backdoor by using inputs from countries with more lax environmental laws.

Tory MP John Penrose, who is lobbying the government to implement the new carbon border tax through a cross-party commission, said the introduction of a U.K. CBAM looks inevitable.

MP John Penrose said the introduction of a U.K. CBAM looks inevitable | Justin Tallis/AFP via Getty Images

“If the EU acts to stop carbon leakage and decarbonisation … but we don’t, then it will put U.K. manufacturing at an enormous competitive disadvantage,” he said.

Another moderate Tory MP said it would be a “major failure of policy” if the U.K. does not follow the EU and implement its own CBAM.

Jack Richardson, energy expert at centre-right think tank Onward, said that heavy manufacturing assets have “long investment cycles, so investors need to know that they will not be undercut by cheaper but higher-carbon imported products as they invest in clean technologies.”

However, some are worried about a CBAM being used as a tool to launch trade wars and to stoke protectionist sentiment.

Independent economist Julian Jessop said he supports the idea in principle, but added that “my worry is that these are just Trump-ish steel tariffs by the backdoor.”

Simon Walker, outgoing boss of the U.K.’s Trade Remedies Authority (TRA), said he’s “always suspicious of measures that are cover-ups for protectionism.”