The UK’s carbon-intensive steel, cement and chemicals industries have warned that – in its current form – the carbon border tax due to be introduced in 2027 will accelerate the decline of domestic industry.
At first glance this appears contradictory – those same industries have long complained about having to compete with cheap foreign producers who do not have to pay the same carbon taxes as UK firms do. So the proposed Carbon Border Adjustment Mechanism (CBAM) – a charge on imports from such countries to match domestic carbon costs – ought to level the playing field. But UK producers warn that flaws in the CBAM will in fact put them at a disadvantage.
Companies in many of the sectors covered by the levy (iron and steel, cement, aluminium, fertilisers and hydrogen) are broadly in support of the principles behind the CBAM – particularly those that are already investing in technology and infrastructure to reduce their carbon emissions. However, the devil is in the detail. They argue that the UK’s approach of applying a single rate across a whole sector, calculated from average emissions values, is unfair and should instead differentiate by product type and country of origin, as the equivalent scheme for the EU does.
The EU levy entered into force on 1 January. The gap between the EU and UK schemes being implemented has raised concerns of global producers dumping cheap material in the UK to avoid paying EU taxes – adding further pressure to struggling UK firms. But those concerns were rejected by UK minsters.
At the same time, while the EU has introduced a scheme to support EU producers exporting to markets that are not imposing carbon taxes, the UK has not followed suit. For export-driven sectors like chemicals, this leaves a significant hole in efforts to retain and decarbonise domestic industry, rather than allowing ‘emissions leakage’ by simply moving production (and the associated climate emissions) elsewhere.
That’s not to say the EU system has had universal approval – it is now in the process of assessing possible adjustments to its CBAM regime in response to industry complaints. But Ammonia Europe, for example, has opposed proposals that would indirectly circumvent CBAM to provide short-term relief, saying that such plans undermine the long-term policy objectives around decarbonisation, preventing emissions leakage and retaining strategic industrial capacity within Europe. There are indications that EU trading partners such as Brazil, Mexico, Japan and Colombia are responding by introducing or strengthening their own emissions pricing regimes
The UK’s basic chemicals industry has been in steady decline for over a decade. The government’s new industrial strategy and recognition of the strategic importance of retaining facilities like the Grangemouth ethylene plant provide some hope that more support may be offered to prevent the industry being lost from the UK completely.
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