Autumn Statement: Chancellor missed opportunity to confirm carbon border policy

22 November 2023

The Chancellor has today missed a major opportunity to confirm that the UK will implement a Carbon Border Adjustment Mechanism (CBAM) in his Autumn Statement.

 UK Steel, the trade association for steel companies in the UK, says that the country is now in danger of playing catch-up with the EU on timetables, leaving a critical, trade-exposed industry at risk. 

A UK CBAM would create a level playing field on carbon pricing, ensuring that imported steel pays the same carbon costs as UK steelmakers. A 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 foreign producers which then export high-emission steel to the UK. As over 90% of the world’s steel faces low or no carbon costs, a UK CBAM is essential to the UK steel industry competing on a level playing field. 

The European Union is in the process of implementing its own CBAM policy by 2026. Without confirming a UK CBAM, high-emission steel currently exported to the EU could be diverted to the UK, which may completely drown the UK steel market. 

Lack of clarity and mutual recognition between the UK and European Union CBAM policies and Emission Trading Schemes could mean new trade restrictions. 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 trading with its biggest export market from 2026.

UK Steel Director General, Gareth Stace, said:

“It is disappointing that the Chancellor did not use his Autumn Statement to announce a UK CBAM and a timetable to implement it by 2026. Imported steel should also pay for its carbon footprint as we have done for years. With over 90% of global steel production facing no carbon cost, it is only right to introduce a carbon border policy to create a level playing field on carbon pricing. It is a missed opportunity not to set out the Government’s plans for its own carbon border policy.

“As UK steelmakers are announcing plans for green steelmaking, a UK CBAM will be essential to these investments, making sure that low-emission, green, UK-made steel is not undercut by high-emission, imported steel, which has not faced carbon costs.

“Delaying the confirmation of a UK carbon border policy will risk the UK playing catch-up with the EU on timetables. The steel industry needs certainty, not further delays.”

ENDS 

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 UK Carbon Border Adjustment Mechanism (CBAM) would create 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.
• A CBAM would aim 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 would 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.

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.
• This 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.
• When facing EU CBAM, 22.5m tonnes high emission steel from countries without carbon pricing will be at risk of trade diversion to open markets like the UK, which underlines the importance of a UK CBAM being implemented by 2026.
• 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.