The UK needs a Carbon Border Adjustment Mechanism
As they decarbonise, heavy industries need assurance that products will not be undercut by more emissions-intensive imports, argues UK Steel’s Frank Aaskov
Steel is a global commodity, intensively traded across borders.
Outside of China, 43 per cent of steel products are traded across borders. In the UK, 40 per cent of steel production is exported, while 60 per cent of direct demand is imported. There is, therefore, intense competition – which keeps steel prices and margins low.
Steel production is also very carbon intensive, contributing to eight per cent of global greenhouse gas emissions. However, steel is also essential to wind turbines, rail, hydrogen production, the grid, and EVs.
But currently, UK producers face high carbon costs, which their competitors do not. This creates an uneven playing field.
Last year, UK Steel, alongside the six steel producers, trade unions, academics, and government officials, published a roadmap for how the industry could considerably lower emissions by 2035, in line with the Climate Change Committee’s recommendations.
Meeting the climate goal requires fundamental changes to steel production in the UK and will necessitate substantial investment in new processes and equipment over the next dozen years, which will have higher production costs. This could lead to UK steelmakers being outcompeted due to the higher operational costs associated with CCUS and hydrogen-based steelmaking when competing with high-carbon producers who do not face carbon costs.
There is a need to ensure that imported high-carbon steel faces a similar carbon cost to guarantee a level playing field. Fundamentally, decarbonising steel production relies on passing on the additional cost of decarbonisation to steel customers without being outcompeted by high-carbon emission steel imported from abroad.
To enable this, policies like Carbon Border Adjustment Mechanisms (CBAM) are needed to provide a level playing field between domestic and international producers.
A UK CBAM will apply a tariff to imported steel products linked to the UK ETS if the steelmaker has not faced domestic carbon costs in the production country. This ensures that all steel consumed in the UK will face a carbon cost regardless of where it is produced. It also creates a market for low-emission steel in the UK: When the industry transitions to green steelmaking, the higher operational expenditure is offset by lower carbon costs, enabling them to compete with imported high-emission steel facing a CBAM tariff.
The European Union is currently introducing its own CBAM, which will apply to steel, cement, aluminium, electricity, fertiliser, and hydrogen. From 2026 onwards, the CBAM tariff will be applied to imported, high-emission steel. This could mean that UK producers will face CBAM trade barriers when exporting to the EU market, while the high-emission steel currently exported to the EU will be diverged to the UK, flood the market, and depress prices. This would profoundly damage the UK steelmakers and domestic production.
Altogether, the EU CBAM could have devastating effects on the UK steel market, UK producers, and the industry’s ability to compete and decarbonise unless the UK follows suit and implements its own comparable policy. The impact of the EU CBAM alone would be sufficient rationale to move swiftly forward. However, the ability to establish a level playing field, create a low-emission steel market, and encourage industrial decarbonisation only adds to the overwhelming reasons to do so.
Only with a UK CBAM can the UK steel industry invest in new green steelmaking technologies, create new green jobs, and reduce its contributions to global climate change.
Frank Aaskov heads up UK Steel’s policy and advocacy work on energy and climate change,
