UK steelmakers face dumping risk over EU carbon tax timing, industry warns
Ministers urged to bring forward start date of British scheme to 2026 to align with Europe
The UK government must synchronise the introduction of a new carbon border tax with Brussels or risk causing “considerable harm” to the British steel industry as a result of cheap imports flooding the country, the industry’s main lobby group has said.
The warning to Sir Keir Starmer’s government is part of growing concerns about the impact of a UK decision to introduce a carbon border tax in 2027 — a full year later than the equivalent EU tax designed to incentivise low-carbon manufacturing.
Gareth Stace, director-general of UK Steel, said the delay in introducing the tax would lead to the dumping of high-emission steel in Britain as producers in Asia and the Middle East looked to avoid the EU’s “carbon border adjustment mechanism”, or CBAM.
“The UK should bring forward its UK CBAM to 2026 to prevent high-emission steel being diverted from the EU to the UK market,” he said. “I fear that HM Treasury is underestimating how rapidly trade flows can change in the steel market.”
Sarah Jones, energy and business minister, told the Financial Times that the government was seeking to “iron out as many bumps as we can” as it examines differences between the EU and UK regimes including the implementation dates, acknowledging the topic was not easy to address. “We want to make it as smooth as possible,” she said.
The UK announced last December that it was introducing a carbon border tax on a range of carbon-intensive products including steel, cement, ceramics and fertiliser from January 1, 2027 following a similar decision from the EU.
The UK tax, which is similar but not identical in scope to the EU version, is designed to create a global level-playing field by taxing imports from countries that do not charge polluters to emit carbon.
According to calculations by UK Steel, under the planned regime an EU company importing steel from a carbon-intensive producer would face charges of approximately €37.50 a tonne, a significant amount for an industry with very tight margins and a global overcapacity problem.
UK Steel has warned that the UK Treasury has underestimated how quickly cheap steel could be diverted to the UK in a global market where fluctuations of as little as €5 a tonne can cause contracts to be renegotiated.
The Labour government indicated before taking office in July that it was interested in re-linking the EU and the UK carbon-trading schemes as part of its reset with Europe.
However, the industry is concerned, given the pace of EU negotiations, that any linkage of carbon trading schemes and subsequent harmonisation of the two regimes would not happen by January 1, 2026 when EU importers must start collecting CBAM payments.
People familiar with discussions in Whitehall said there were significant gaps between the UK Treasury and other impacted departments, including the Department for Business and Trade, and the Department for Energy Security and Net Zero.
Internal EU briefing documents seen by the FT said that Brussels is “open” to relinking its carbon trading scheme with the UK, but only if Britain accepted “dynamic alignment” with EU rules.
The documents added that such a move would require a new international agreement, which in turn would require EU ratification in the European parliament, suggesting that the process could be quite lengthy.
Exporters to the EU are already required to submit detailed information about the carbon content of products including in the EU CBAM, in preparation for the collection of taxes from January 1, 2026.
Jones said conversations were ongoing between government departments and with the EU on how best to make the carbon pricing regimes work. Challenges include the design of the scheme and range of industries in scope, as well as the question of implementation dates in the UK and EU, she said.
“There are challenges when a previous government has announced a certain date,” she said. “There is obviously a challenge of being able to change it and get all the work done in time.”
Jones said the UK wanted to work “really closely” with the EU to ensure the carbon pricing regimes work for business. “With the reset with the EU, that is an opportunity to make sure we are working together to make sure we are delivering the best for our collective industries,” she said.
The Treasury defended the decision to introduce the new regime in 2027. “A CBAM is a novel mechanism, which is why implementation in 2027 will allow the government to consult fully with affected businesses and give them more time to prepare fully for its introduction.”