The UK is considering introducing a carbon tax on imported steel in a bid to protect its domestic steelmaking sector.

The levy would form part of a £600m support package designed to support Britain’s two largest steel producers, British Steel and Tata Steel UK, to invest in greener technologies while avoiding having to cut thousands of jobs.

According to the FT, the move would come amid concerns that steel made to lower environmental standards overseas could be imported into the UK at cheaper prices than domestic production.

Similar to the EU’s CBAM

The levy would be similar to the Carbon Border Adjustment Mechanism (CBAM) that was originally presented by the European Commission in 2021 and is provisionally due to start coming into force from 31 October this year.

According to the European Commission website, the CBAM measures the price paid for carbon emissions in the production of certain goods that are imported into the EU in order to “ensure the carbon price of imports is equivalent to the carbon price of domestic production”.

Goods covered by CBAM include steel, iron, cement, aluminium, fertilisers and electricity.

Paving the way for a UK CBAM?

The UK government has previously said that it would consult industry on the introduction of a similar mechanism in the UK.

The recent Net Zero Review report, presented by ‘net zero tsar’ Chris Skidmore MP to the government, recommended that this consultation was bought forward to this year. The report said:

“It is positive that the government is looking to consult on carbon leakage measures in relation to trade, including the option to establish a CBAM. At the same time, we have heard concerns from stakeholders about the domestic carbon price.

“The government should also consider how to minimise the upward pressure on carbon prices, such as when it sets a net zero consistent cap for the Emissions Trading Scheme (ETS) or on the long-term role played by carbon price support.”

Green taxes for clothes and meat

Another study by the Behavioural Insight Team (BIT) has found that the majority of people think carbon levies should also be extended to goods such as clothes, meat and electronics.

BIT was set up by the government in 2016 but was sold off to innovation charity Nesta in 2021. It’s still known as Whitehall’s ‘Nudge Unit’, according to the Telegraph.

As part of a survey on what would encourage consumers to go green, over 70% of respondents backed extending carbon levies to clothing and electronics; 53% supported a carbon tax on red meat and dairy.

EU timelines

At the end of last year, MEPs reached a provisional agreement with the Commission to begin introducing CBAM rules for imports from 1 October 2023, though a phased approach will be adopted, with an initial transitional period in which importers obligations will be limited to reporting.

The CBAM forms part of the EU’s wider Emissions Trading System (ETS) initiative. The Commission describes ETS as the “cornerstone of the EU’s policy to combat climate change” and as “the world’s first major carbon market”.

The formal approval of the agreement to introduce CBAM in the autumn remains dependent on an agreement between MEPs and the Council on reforms to ETS.

Get ready now

Jane Tait, a customs and trade specialist at the IOE&IT, said that businesses with EU supply chains or subsidiaries should start preparing for the new rules now.

“UK firms with EU subsidiaries importing the commodities affected by CBAM rules should understand what they will need to do to monitor, validate and report on production emissions,” she said. “The reporting standards have not yet been outlined by the EU, so traders should make sure to continue monitoring updates from organisations like the IOE&IT.”

UK ETS

The UK introduced its own ETS on 1 January 2021, having just completed its departure from the bloc.

At the time, the government said that the new independent ETS would “increase the climate ambition of the UK’s carbon pricing policy, while mitigating the risk of carbon leakage through free allowances.”