British steel industry calls for faster implementation of CBAM analogue

The UK government is to synchronise with the EU the introduction of its own cross-border carbon tax mechanism, postponing it to 2026, the UK Steel industry association said. This was reported by the Financial Times.

UK Steel CEO Gareth Stace explained that a delay in the introduction of its own CBAM would lead to dumping of high emission steel to the UK as producers in Asia and the Middle East would try to avoid the European mechanism.

Stace expressed concern that the UK Treasury was underestimating how quickly trade flows in the steel market could change.

Sarah Jones, the Energy and Business Secretary, told the FT that the government is keen to iron out as many bumps as possible as it explores the differences between the EU and UK mechanisms, including implementation dates, and acknowledged that the topic is not a simple one.

In December 2023, the UK announced that it would introduce its own cross-border carbon tax on a range of items, including steel, from 2027. It is similar to the European tax, but not identical in scope.

UK Steel estimates that under the planned regime, an EU company importing steel from a carbon-intensive producer will pay approximately €37.50/t, which is a significant amount for a low-margin industry facing a global overcapacity problem.

Before coming to power in July this year, the Labour government stated that it was interested in re-linking the EU and UK carbon trading schemes as part of a reset with Europe.

However, given the pace of negotiations in the EU, the steel industry is concerned that any merger of carbon trading schemes and further harmonisation of the two regimes will not take place before 1 January 2026, when the European CBAM will be fully operational.

Sources familiar with the discussions in the British government note that there are significant differences between departments on this issue.

In addition, the schemes will need to be harmonised and a new international agreement will need to be ratified by the European Parliament, a process that could be quite lengthy.

Sarah Jones noted that negotiations are ongoing between government departments and the EU on how best to ensure that carbon trading schemes work. According to her, the challenges include the design of the scheme and the range of sectors it covers, as well as the issue of implementation dates in the UK and the EU.

The UK risks losing up to £8bn ($10.2bn) in revenue over the next five years (from 2025 to 2030) if it remains outside the EU carbon market. This is stated in a study commissioned by the country’s energy market participants.