UK Steel proposes 2026 CBAM start

UK Steel has proposed the UK government bring forward the implementation of its prospective Carbon Border Agreement Mechanism (CBAM) by one year to 2026, to align with the EU’s schedule. This would minimise the risk of trade barriers and trade diversion, the UK trade association says.

The recommendation is one of 12 made by UK Steel in a new report on key design principles for CBAM.

“Over 90% of global steel production faces no carbon cost, so it is crucial that a new UK carbon border creates a level playing field on carbon pricing. This will ensure that imported steel faces similar levels of carbon costs as domestic steel producers,” UK Steel director general Gareth Stace says in a note sent to Kallanish.

“The UK CBAM must be designed to be robust and impenetrable. Otherwise, there is a substantial risk of significant damage to the UK steel industry at the time of once-in-a-lifetime investment in state-of-the-art, modern Net Zero steel production,” he adds.

An estimated 22.5 million tonnes of high-emission steel currently imported by the EU would be at higher risk of being diverted to other open markets once EU CBAM is implemented in 2026. If just 10% of this were to be diverted to the UK, that would result in a 45% increase in UK imports, corresponding to around 80% of the UK market, UK Steel says.

In 2026, EU free allowances will be reduced by 2.5%, and the UK government plans to implement its reforms to free allocation. This will result in importers of UK-made steel having to buy EU CBAM certificates, as the legal and cost compliance obligations are on importers, the trade association notes.

“Where the actual cost falls directly or indirectly will be a matter for commercial discussions and agreements with any EU-based customers and will be bespoke to each commercial agreement. However, an additional cost is placed on UK-made steel if imported to the EU market, which will constitute as a disadvantage to the UK steel industry’s biggest export market,” UK Steel says in the report.

UK Steel also recommends delaying the inclusion of scope 2 emissions, until there is a complete decarbonisation of the electricity grid. It says all UK Emissions Trading System (ETS) sectors should be covered to minimise the risk of material substitution, as should products where CBAM materials make up a substantial part, to avoid value chain circumvention. CBAM should also be linked to UK ETS and be based on weekly average ETS prices.

Moreover, UK CBAM should obtain mutual recognition with EU CBAM to enable frictionless trade with the UK’s largest trading partner. Non-EU exports should meanwhile be exempted from UK ETS costs to avoid disadvantaging trade to non-EU markets, and CBAM revenue should be earmarked for industrial decarbonisation.

Adam Smith Poland

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