Critical carbon border policy’s sluggish timeline will leave UK steel sector exposed

19 December 2023

The Government has today confirmed that the UK will implement a Carbon Border Adjustment Mechanism (CBAM) in 2027, one year after the European Union fully implements its own. 

The CBAM could create a level playing field on carbon pricing, ensuring that imported steel pays the same carbon costs as UK steelmakers. A robust, industry-supporting UK CBAM is essential to prevent deindustrialisation (also known as carbon leakage), where high carbon costs and climate change regulations are placed on domestic producers, but not on foreign producers that export steel to the UK. Over 90% of the world’s steel faces little or no carbon costs, so a UK CBAM is essential for the nation’s steel industry to compete on a level playing field. 

By confirming a CBAM from 2027 instead of matching the EU’s 2026 timeline, the Government risks high-emission steel being dumped in the UK from 2026 when the EU CBAM takes effect. The steel sector has repeatedly warned Government against not mirroring the EU implementation timetable, as this would leave the UK steel industry exposed. The delayed implementation could mean that some of the high-emission steel currently exported to the EU will be diverted to the UK and depress prices when facing the EU CBAM in 2026. Simultaneously, trade safeguards end in 2026, leaving the UK steel industry exposed to surges in imports. 

Mutual recognition between the UK and EU CBAM policies and Emission Trading Schemes (ETS) is equally crucial to avoid any restrictions to trade. 75% of the UK steel industry’s exports - totalling 2.55Mt of steel (£3.5bn in value) - goes to European markets. Without mutual recognition and linked emission trading schemes, UK-made steel will face a financial trade barrier when exported to our biggest export market. 

While a UK CBAM is welcome, carefully design and sufficient checks-and-balances are critical. If the UK CBAM is not robust enough, imported steel could circumvent the policy and not pay carbon costs while domestic steelmakers face increasing carbon costs. Free allocation of UK ETS carbon allowances has been the only effective protection against carbon leakage in relation to carbon costs. Any changes to free allocations must be done carefully and gradually, and the Government must be ready to step in in cases of circumvention, incorrect customs reporting, or other unfair trading practices. 

UK Steel Director General, Gareth Stace, said:

“With over 90% of global steel production facing no carbon cost, it is only right that a new carbon border policy is put in place to create a level playing field on carbon pricing. However, implementing the UK scheme one year after the EU CBAM starts is hugely concerning. Despite the steel sector repeatedly warning officials how exposed the UK would be if it did not mirror the EU implementation timetable, Government today seems to be actively planning for just that scenario.

“A UK CBAM is essential to securing investments in new green steel production and making sure that low-emission, UK-made steel is not undercut by high-emission, imported steel which has not faced carbon costs. Steel trade on equal terms can be achieved by a robust and industry-based UK carbon border policy.  

“With a delayed timeline, the Government must now get the implementation right. If the CBAM is easily bypassed while carbon costs rapidly rise for UK industry, Britain's steel sector could suffer huge damage. The Government will need to be fleet of foot to respond in cases of unfair trading practices and take further action in 2026, if necessary. We look forward to working with Government to ensure the UK CBAM works for industry and provides shielding against high-emission imported steel, enabling a fair, competitive environment.”

Contact details 

Louise Young, Campaigns and Engagement Manager, UK Steel 07388 370176 | Lyoung@makeuk.org

About UK Steel: 

UK Steel is the trade association for the UK steel industry. It represents all the country’s steelmakers and most downstream steel processors. 

About Carbon Border Adjustment Mechanisms (CBAMs) 

• A Carbon Border Adjustment Mechanism (CBAM) creates a level playing field by applying carbon prices at the border equivalent to those faced by domestic producers. The European Union (EU) is introducing an EU CBAM.
• European and UK steelmakers face higher carbon prices than any other part of the world.
  • Only the UK, EU, Canada, and New Zealand apply comparable carbon pricing (£30-£70/tCO2e), responsible for 155 million tonnes of steel or 8.2% of global steel production in 2022.
  • Japan and South Korea apply carbon pricing of around £10/tCO2e and produce 155 million tonnes of steel or 8.2% of global steel production in 2022.
  • The rest of the world either applies carbon pricing of less than £3/tCO2 or no carbon pricing at all.
  • This means that 91.8% of global steel production does not face carbon pricing comparable to the UK, if at all.
• CBAM aims to prevent carbon leakage, where higher national carbon prices increase domestic production costs, leading to high-emission, cheap, imported steel outcompeting and replacing domestic steel supply.
• A CBAM policy will support the decarbonisation of steel production, allowing steelmakers to produce low-emission steel (potentially with higher production costs) without being outcompeted by high-emission, lower-cost, imported steel.

  Safeguards: 

• UK steel trade safeguards are currently under review for their extension beyond June 2024, to June 2026. Safeguards can only be in place for a maximum of eight years as per WTO rules and as they have been in place since 2018, they will have to expire by 2026.

  EU timeline: 

• The European Union is implementing a CBAM policy, initially phasing in reporting requirements from October 2023 before the CBAM compliance carbon costs apply from 2026 onwards.
• UK producers will need to comply with the EU CBAM regulation, resulting in a trade barrier to our biggest export market. Since there is a gap between UK and EU carbon pricing, steel exported to the EU would face a trade barrier.
• The EU is an important market for the UK: in 2022, the UK exported 3,399,485 tonnes of steel, of which 2,550,312 tonnes went to EU member states, constituting 75% of exports.

 The UK steel sector:  

• Produces 6Mt of crude steel a year, around 70% of the UK’s annual requirement (annual demand of 8.9Mt)
• Employs 39,800 people directly in the UK and supports a further 50,000 in supply chains
• The median steel sector salary is £39,637, 43% higher than the UK national median and 56% higher than the regional median in Wales, and Yorkshire & Humberside, where its jobs are concentrated
• Directly contributes £2.9 billion to UK GDP and supports a further £3.8 billion
• Directly contributes £4 billion to the UK’s balance of trade
• 96% of steel used in construction and infrastructure in the UK is recovered and recycled to be used again and again.

For further information about the steel industry, please see the 2023 press pack, Why the UK needs a strong steel sector or the 2023 UK Steel Key Statistics report.