Carbon Budget Order 2026

Lord Fuller Excerpts

Tuesday 23rd June 2026 Lords Chamber

[Lord Fuller (Con)]

My Lords, I will focus on the unintended consequences that flow from the 16 words in the order that place an arbitrary cap on our nation’s economic potential. There are hard truths that need to be told about the practical effects, which include incentivising the importation of the most polluting products while jobs are lost at home. I do not deny the importance of decarbonisation—the oil is going to run out eventually—but setting a cap of 535 million tonnes of carbon dioxide equivalent from 2038, more than a whole decade away, in a world of uncertainty is to take a path that makes our people poorer and, counter- intuitively, makes global emissions worse in the rest of the world.

I declare my interest as someone involved in the fertiliser trade. While I do not produce it, I am involved in the trade that brings it to our shores.

It is always useful to follow the money. From 2013 to the end of last year, EU ETS auctions have raised over €258 billion in revenue for the EU. In 2025 alone, EU ETS revenues totalled more than €43 billion. This is a tax gusher dressed up as environmental virtue signalling. On that basis, it is hardly surprising that the EU has introduced trade barriers to keep everyone else out, and now the UK wants to follow suit.

Let us deep dive into the industry I know best, which will be subject to insane fertiliser taxes from next January. I know about carbon budgets and the paraphernalia that flow from them: the emission trading schemes, the carbon border adjustment mechanism, free allowances and default values that, bizarrely, will create powerful fiscal incentives to send the most polluting fertilisers to the UK. They all sound so good in theory, but the CBAM and its evil twin, the ETS, are making us structurally uncompetitive—and, as a double whammy, the way Britain has chosen to implement them in the UK, like VAT, is architecturally incompatible with the EU system, which relies on permits and registries.

These orders tie us to the EU ETS, but there are many other ways in which the UK ETS differs from the EU equivalent. Not only is the denomination euro versus sterling but there is the EUA versus the UKA, reflecting two different economic territories. There is no CBAM hedging liquidity, alongside all sorts of arbitrages that place the UK at a competitive disadvantage. There is also a wilful refusal to provide the clarity on free allowances, which the EU is now diluting but which are essential to enable future trade in our country.

Why would we tie ourselves to the EU via the draft Climate Change Act 2008 (Credit Limit) Order 2026, which is so incompatible with the UKA, sterling and default values? This is not dynamic alignment or mutual recognition; this is fossilising our future based on today’s values in an uncertain world, putting a cap on our country’s ambition and capability. The risks are that, if the EU changes the goalposts for any of the carbon components—as it is doing at the moment—we would be left at a comparative disadvantage for the next 15 years. The EU has seen us coming—something our Government cannot see for themselves. Why are we running towards this danger?

Worse, we are hard-coding numbers 12 to 16 years hence, yet the Chinese, who do not share our worldview, have unilaterally changed the way in which they calculate carbon emissions, leaving us high and dry up that proverbial creek without a paddle. The naive “good chap” way in which we have chosen to account for carbon—in divergent ways to the EU and the rest of the world—will make us the natural dumping ground for the world’s most polluting fertilisers. Success was never to be like that. In the past two months, the Chinese have reversed a fertiliser export ban and turned up coal-fired urea production to eleven to exploit global shortages.

Our proposed default carbon values, which flow from these orders, provide perverse incentives to import these polluting products at the expense of cleaner products. The system of free allowances has diverged into an Alice in Wonderland fantasy land where, with the aim of levelling the playing field, we will be taxing imports of certain carbon-intensive goods that are not even made in this country. All that does is drive inflation. The UK is proposing free allowances for a fertiliser industry that no longer exists in this country, making farmers pay even more for their most expensive input. That is clearly contrary to the WTO and the rules-based order, which the outgoing Prime Minister purports to support. It is madness.

Last week, the EU announced that carbon taxation would be extended to secateurs and gardening tools. I ask the virtue signallers to accept that, by making UK energy feedstocks uncompetitive by forcing the highest energy prices on our chemical industry, they will actually increase global emissions by outsourcing production to more poorly regulated nations, throwing thousands of Britons on to the dole in a crass deindustrialisation, just so the members of the London Labour Party can virtue signal how green they are while sipping negronis on their step-free bifold-access terraces, grazing on tofu picked up at Whole Foods.

The facts are that, for everyone else, these carbon budgets and the taxes are driving up the cost of beer, biscuits, bread, butter and barbecues. I hope the Mancunian Messiah recognises that simple truth in the coming weeks.