EU carbon costs could ‘crush’ the UK steel market, trade body warns

The British trade association has called for the UK to introduce a carbon border adjustment mechanism (CBAM) that would come into effect at the same time as the European Union’s, in 2026.

The EU views CBAM as a way to create a market for low-emission steel and help the industry decarbonise. The mechanism will begin its transitional phase in October, initially applying to imports of certain goods and selected precursors whose production is carbon-intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

Eventually, CBAM could capture more than 50 per cent of the emissions of covered sectors, the EU said.

Due to these carbon costs, UK Steel’s new statistics predicts that 23 million tonnes of steel currently imported into the EU could be diverted towards the UK market.

The UK currently consumes 9 million tonnes of steel a year, meaning massive imports of cheap steel could "crush" the domestic steel manufacturing sector, and contribute to rising emission rates.

In addition, the EU restrictions would also affect the UK's steel exports, creating a trade barrier. At the moment, 75 per cent of British steel exports - 2.55 million tons of steel worth £3.5bn - are sold in European markets. However, without a CBAM, this quantity could be significantly lower from 2026 onwards.

Imposing a CBAM would remove this risk and foster a market for low-carbon steel, the trade body says.

"Over three times our annual steel consumption is at risk of being diverted from the EU to open markets like the UK, which could suffocate our domestic industry," said Gareth Stace, director general of UK Steel. “By not acting now UK government will burst the dam, when high-emission, cheap steel floods the UK market while ruining our export opportunities at the same time.

“We need a UK Carbon Border Adjustment Mechanism to level the playing field on carbon costs across local and international suppliers. By having a competitive domestic steel industry, the UK can lead the way to Net Zero steelmaking.

"Steel is vital to the UK’s economic resilience, jobs and hitting Net Zero targets for the wider economy, and integral to green tech, transport and future housing.”

Steel is the world’s largest materials industry, and it currently accounts for an estimated 7 to 9 per cent of global carbon emissions, despite ongoing efforts to decarbonise it.