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Britain’s largest steelmakers have stepped up warnings that the UK risks becoming a dumping ground for low-cost imports unless the government speeds up the introduction of a new carbon border tax.
Currently, the UK government plans to introduce the levy in 2027, one year after the European Union brings in its own tax. The industry fears this will lead other countries to divert their high-emission steel — previously destined for the bloc — to Britain.
UK Steel, the industry trade body, has written to the Treasury urging ministers to reconsider, according to people familiar with the correspondence. The government’s consultation on the introduction of the “carbon border adjustment mechanism” ends mid-June.
The mechanism is a tax on imported materials such as steel or cement that aims to protect domestic manufacturers from being undercut by cheaper products from countries that face lower carbon costs.
When the EU introduces the mechanism in 2026, there is a danger that “high-emission steel destined for the European markets could be diverted to the UK, causing considerable harm to the UK steel industry,” UK Steel’s director-general Gareth Stace told the FT.
British Steel, the UK’s second-largest producer, told the Financial Times it had “highlighted the severe implications a failure to align the timing of the mechanisms will have on our business” to ministers. India’s Tata Steel, which owns the UK’s largest steelworks in Port Talbot in Wales, said the later introduction of the tax was a “very big concern”.
The Treasury announced its plans for the tax last December to help protect UK companies from being undercut by imports from countries with weaker climate regulations than Britain. Under the plans, imports of iron, steel, ceramics, cement and other goods will be subject to the levy.
However the proposal not to align its implementation with that of the EU immediately triggered concerns, with the industry warning of the risk of trade diversion. Executives believe the government is underestimating how quickly trade flows in the sector adapt to changes in price.
The vast majority of the steel exported to the EU from countries including China, Turkey and India currently faces no significant carbon price, and will face extra costs when entering the bloc from 2026.
Even a small increase could be sufficient to divert steel away from the EU markets to open markets such as the UK, the industry has warned.
“We have previously seen steel imports from China quintuple within just 12 months,” said Stace.
“Global steel overcapacity is massive, so even a relatively small EU [carbon border adjustment mechanism] charge can divert high-emission steel away from the European market to other open markets like the UK,” he added.
Government officials, however, believe the concerns are overblown.
A Treasury spokesman said that as the EU would be introducing its mechanism charge “gradually”, and that only a “very small amount of the emissions embodied in [affected] goods will face the charge in 2026”.
He added: “This means that the likely impact on UK businesses as a result of trade diversion in 2026 . . . will be very low.”
Officials also point out that the EU’s tax will not reach full strength until 2034, when free emissions allowances for industry in the bloc are phased out.
The government is also keen to ensure that businesses in the UK have time to adapt to the new scheme.