CBAM hits UK steel exports: carbon cost priced at the border

The British government's failure to secure an exemption from new environmental levies means UK producers face Brexit-like mountains of bureaucratic paperwork for £7 billion in January exports to the EU. The UK had hoped to obtain an exception on CBAM by Christmas, but EU commissioners confirmed this would not happen.

UK Steel says an exemption is unlikely to come into force before Easter, meaning exporters will face detailed paperwork on customs and standards for their goods — just as they did with Brexit. The documentation requires exporters to provide a detailed record of carbon emissions generated during the production process. According to plans announced by Brussels on Wednesday 24 December, this regulation will cover a wide range of products made from steel and aluminium, including washing machines and car parts. It will also cover fertiliser, cement, and energy exports.

While the UK specifically expressed its hope for a deal before Christmas, industry insiders say this was beyond the bounds of political reality. The EU only signed the mandate for negotiations in early December, making any deal impossible short of a top-level political agreement spanning all 27 member states — including some with little interest in the UK.

A government official said it would be prudent for businesses to prepare on the assumption that the EU CBAM will be in force from January and that support and information is available from the Department for Business and Trade.

Paperwork will be "very extensive" and seriously impact businesses

Manufacturing trade body Make UK said the paperwork would be "very extensive" and would seriously impact businesses. UK Steel's director of energy and climate change policy, Frank Aaskov, said: "This will have a significant negative impact. The bureaucracy is absolutely enormous. It will be a very large burden for small and medium-sized businesses." Aaskov said the taxes set at €13 per tonne (£11) for "hot-rolled wire" — a raw material used in construction, fencing, and engineering — would be significant for the steel industry. "The cost per tonne of this type of steel is about €650, so it may seem like a small cost, but the steel sector is ruthless, competition from Chinese imports is fierce, and any difference of up to €5 per tonne can be the difference between winning and losing a contract."

Although the taxes do not need to be paid until 2027 and could be cancelled pending a possible deal next year, this adds to the nightmare the British steel sector already faces with the EU. Under the bloc's rules, negotiations will now proceed in two stages: first, a formal meeting to establish the terms of engagement, and second, on emissions trading systems. Months ago, the EU announced it would retaliate against Donald Trump's tariffs on steel imports and raise tariffs on imports from third countries like the UK to 50%. This was condemned as an "existential threat" to the already-struggling British steel industry.

EU Climate Commissioner Wopke Hoekstra said on Wednesday: "We are having very good conversations with our friends in the UK." Playing down the significance of 1 January, Hoekstra noted that decarbonisation efforts in the UK were progressing well, saying: "The price the UK will pay is actually minimal." Responding to questions about UK talks, Hoekstra said negotiations on two opposing emissions trading systems needed to take place first. "It really is a matter of doing things in the right order, step by step, in numbers," he said. A UK government spokesperson said: "Our priority is to secure a carbon linkage deal as soon as possible that will protect UK industry from paying carbon levies on £7 billion worth of exports."