British steel and manufacturing exporters are bracing for a fresh wave of Brexit-style bureaucracy from January, after the UK government failed to secure a crucial exemption from the European Union's new green levy system.
Exemption Hopes Dashed Before Christmas
The UK had privately hoped to agree on a carve-out from the EU's Carbon Border Adjustment Mechanism (CBAM) by Christmas. However, EU commissioners have now confirmed this will not happen, with industry body UK Steel stating the exemption is unlikely to be in place before Easter at the earliest.
This failure means that from 1 January, UK companies exporting around £7bn worth of goods to the bloc will need to provide extensive new documentation. The paperwork requires a detailed paper trail of the carbon emissions generated during the manufacturing process.
A Mountain of New Bureaucracy
The new rules will apply to a wide range of products made with steel and aluminium, including car parts and washing machines, as well as fertiliser, cement, and energy exports. The manufacturing trade body Make UK warned the paperwork would be "extensive" and hit businesses hard.
"It is going to have a significant negative impact," said Frank Aaskov, energy and climate change policy director at UK Steel. "The paperwork is definitely significant. It will be quite a burden on SMEs."
While the actual CBAM charges do not need to be paid until 2027 and could be cancelled if a deal is reached next year, the immediate administrative burden is substantial. A government insider has advised it is now "prudent for businesses to prepare" for the rules to be in force, with support offered by the Department for Business and Trade.
Competitive Threat and Political Reality
The financial impact of the eventual tax is also a serious concern for the already beleaguered steel industry. Aaskov gave the example of hot-rolled wire, a steel product used in construction, which would face a levy of around €13 (£11) per tonne.
"That kind of steel costs about €650 per tonne, so it seems like a small cost, but the steel business is ruthless, with imports from China very competitive, and anything up to €5 per tonne can be the difference between getting a contract and losing a contract," he explained.
EU Climate Commissioner Wopke Hoekstra downplayed the significance of the January deadline, stating the immediate price for the UK would be "minimum" due to its decarbonisation efforts. However, he confirmed that formal negotiations on linking the UK and EU emissions trading systems must happen first, a process that will take time.
This CBAM setback compounds existing problems for UK steel with the EU, which recently announced it would match US tariffs, potentially doubling levies on UK steel imports to 50%—a move described as an "existential threat" to the industry.
A UK government spokesperson said: "Our priority remains securing a carbon linking agreement as soon as possible, which would save UK industry from paying the charge on £7bn worth of UK exports."
