CONTRIBUTORS
SCARLETT NASH & CLODAGH MULDOON
In recent years, sustainable finance has become pivotal for global businesses, aiming to harmonise financial systems with environmental objectives. A major forthcoming legislative change is the UK’s 2027 carbon tax, intended to spur reductions in greenhouse gas emissions and foster sustainable business practices.
This tax framework will also include a carbon border adjustment mechanism (CRAM), impacting imports of carbon-intensive products across sectors like iron and steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement.
This Photo by Unknown Author is licensed under CC BY
Expected to affect industries reliant on fossil fuels and with high emissions, such as manufacturing, energy, transportation, and agriculture, the tax seeks to incentivise carbon reduction efforts. However, its implementation may pose challenges for businesses, especially Tax advisors, CFO’s and company accountants adapting to these shifts.
This legislative move is part or the UK’s broader strategy to meet its net zero emissions target by 2050.
The 2027 carbon tax legislation will impose a fee on carbon emissions, compelling businesses to internalise the environmental costs of their operations. The tax is structured to gradually increase over time, encouraging companies to invest in cleaner technologies and reduce their carbon footprint.
1. Assess Current Emissions: The first step for any SME is to conduct a thorough assessment of their current carbon footprint. This includes identifying major sources of emissions within their operations.
2. Invest in Energy Efficiency: SMEs should explore ways to improve energy efficiency. Simple measures like upgrading to energy-efficient lighting, optimising heating and cooling systems, and investing in modern, efficient machinery can significantly reduce emissions.
3. Adopt Renewable Energy: Transitioning to renewable energy sources such as solar, wind, or biomass can help SMEs reduce their reliance on fossil fuels and lower their carbon tax liability.
4. Engage with Supply Chains: SMEs should work closely with their supply chains to encourage sustainable practices. This might involve choosing suppliers with lower carbon footprints or collaborating on joint sustainability projects.
5. Stay Informed and Seek Support: Keeping abreast of legislative changes and seeking support from government programs or industry associations can provide SMEs with the guidance and resources needed to comply with new regulations.
6. Consider mitigating carbon impact: While reducing emissions should be the primary goal, SMEs can also explore carbon R nature initiatives to compensate for unavoidable emissions. Investing in projects that remove or reduce carbon from the atmosphere or redistribute negative impacts to nature projects can be a viable strategy.
7. Sustainability Reporting: Whether at the outset of your journey, navigating challenges, or refining your goals, robust sustainability reporting enhances the confidence of regulators, investors, and stakeholders affirming your business’s forward-thinking approach.
The 2027 carbon tax legislation marks a significant shift in the UK’s approach to combating climate change. For all UK businesses, this presents both a challenge and an opportunity to innovate and lead in sustainable business practices. By taking proactive steps to reduce emissions and improve energy efficiency, companies can not only comply with the new regulations but also position themselves for long term success in a greener economy.
Companies should start preparing for the UK carbon tax to prepare costs related to a business sustainability strategy budget so that they can start understanding specific compliance relating to their industry. This will allow business to set clearer goals specific to Environment, Social & Government topics which will support ‘business future proofing’ & help mitigate risks.
Take early action to align your strategy with the current climate crisis as well as enhance your reputation, attract investors and build confidence with consumers.
Contact Scarlett Nash for further information and advice on: scarlett.nash@meum.group