The UK’s carbon-intensive steel, cement and chemicals industries have alerted that – in its present form – the carbon border tax because of be launched in 2027 will accelerate the decline of domestic industry.
At first look this seems contradictory – the ones same industries have long complained about having to compete with cheap foreign manufacturers who do not need to pay the same carbon taxes as UK firms do. So the proposed Carbon Border Adjustment Mechanism (CBAM) – a charge on imports from such nations to align with domestic carbon costs – ought to level the playing field. But UK manufacturers warn that flaws in the CBAM will in fact put them at a disadvantage.
Corporations among the sectors covered by the levy (iron and steel, cement, aluminium, fertilisers and hydrogen) are widely in support of the rules behind the CBAM – mainly those which might be already investing in technology and infrastructure to reduce their carbon emissions. Moreover, the devil is in the detail. They claim that the UK’s approach of applying a single price throughout a whole sector, evaluated from average emissions values, is unfair and need to differentiate by using product kind and country of origin, because 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 carried out has increased worries of global manufacturers dumping cheap-material in the UK to prevent from paying EU taxes – including further pressure to facing challenges UK corporations. But those concerns have been rejected by UK minsters.
At the same time, even as the EU has launch a scheme to guide EU manufacturers exporting to markets that are not enforcing carbon taxes, the UK has not followed suit. For export-driven sectors like chemicals, this leaves a vast hole in efforts to maintain and decarbonize domestic industry, instead of permitting ‘emissions leakage’ by just moving manufacturing (and the related weather emissions) somewhere else.
That’s now not to say the EU system has had universal approval – it’s now in the process of evaluating possible adjustments to its CBAM regime in response to industry court cases. But Ammonia Europe, as an example, has opposed proposals that might indirectly circumvent CBAM to provide short-term relief, announcing that such plans undermine the long-term policy objectives around decarbonization, avoiding emissions leakage and keeping strategic commercial capacity within Europe. There are indications that EU trading partners along with Brazil, Mexico, Japan and Colombia are responding via reinforcing their own emissions pricing regimes.
The UK’s basic chemicals industry has been in steady decline for over a years. The government new industrial approach and recognition of the strategic importance of maintaining facilities like the Grangemouth ethylene plant provide some hope that more support can be offered to prevent the industry being lost from the UK completely.
