A major overhaul of European Union environmental trade regulations takes effect today, directly impacting British exporters of carbon-intensive products like steel, cement, and fertilisers.
What is the CBAM and How Does it Work?
The EU's Carbon Border Adjustment Mechanism (CBAM) is designed to create a level playing field for industries within the bloc. Companies selling goods such as iron, steel, aluminium, cement, hydrogen, electricity, and fertilisers into the EU must now prove they comply with low-carbon standards or purchase certificates to cover the emissions generated during production.
Stéphane Séjourné, the European Commission's executive vice-president for prosperity and industrial strategy, stated the reform is crucial. "European industrial producers should be encouraged – and not deterred – in their decarbonisation efforts," he said, emphasising it secures European players' competitiveness on the global stage.
Immediate Challenges for UK Exporters
Despite the UK having its own carbon regulations, the failure to secure a formal linkage agreement with the EU's Emissions Trading System (ETS) means British companies face immediate administrative burdens. A proposed exemption deal proved elusive, leaving exporters potentially liable for charges and a significant increase in paperwork.
Wopke Hoekstra, the EU's climate commissioner, suggested UK concerns might be minimal, especially once carbon markets are linked. "The price it [the UK] will be paying is actually minimum," he commented before Christmas. However, industry bodies are less optimistic about the short-term disruption.
Diana Casey, Executive Director of the Mineral Products Association, highlighted the threat to UK cement production. She noted that imports now constitute about a third of the UK market, up from 10% a decade ago, driven by cheaper production costs abroad. "We need the CBAM to level that carbon cost playing field... it is quite fundamental to securing the future of cement production here in the UK," she argued.
Broader Impacts and Future Expansion
The EU pressed ahead with the CBAM despite protests from major economies like China, the US, and Australia. A potential consequence is that Chinese steel, for example, could lose its price advantage in Europe, potentially leading to a glut of products being dumped at low prices into alternative markets like the UK.
Looking forward, the EU plans to expand the CBAM's scope from 2028 to cover finished products made from steel and aluminium, such as machinery and electric appliances. This move aims to prevent manufacturers from circumventing the rules by relocating assembly outside Europe.
A UK government spokesperson said: "We are delivering on our commitment to secure a carbon linking agreement with the EU as soon as possible, which will exempt British businesses from over £7bn worth of export charges." The UK is expected to introduce its own version of a CBAM next year.
