UK carbon border tax set for 2026 introduction, reports say

The Treasury is considering mirroring EU rules by introducing a carbon border adjustment mechanism (CBAM), a tax on certain imports such as steel and cement that produce a large volume of carbon emissions when they are produced, in 2026, according to reports.

Carbon border taxes are designed to prevent ‘carbon leakage’, whereby decarbonisation efforts are undermined by production emissions effectively moving from one country to another due to different levels of decarbonisation effort such as carbon pricing and climate regulation.

The EU introduced its own CBAM last month, which will come into effect in 2026. The Treasury consulted on measures to prevent carbon leakage earlier this year, with policy proposals including a CBAM or mandatory product standards.

The Financial Times reported this morning that chancellor Jeremy Hunt is planning to introduce the levy from 2026, mirroring EU measures. It also suggested that the CBAM could be announced in the Autumn Statement next week.

A spokesperson for the Treasury said that it did not comment on speculation ahead of fiscal events, and that it would announce next steps “in due course”. The consultation received over 160 responses, he added.

Research by E3G and market research company Stack Data Strategy found that three-quarters of UK manufacturers (73%) back the UK introducing a CBAM, with fewer than one in ten (8%) opposing it.  

Almost half (49%) estimated that it would have a positive impact on their business. Respondents commented that it would create a level playing field, ensuring that their business would not be undercut by cheaper products from countries with less stringent environmental regulations.  

UK manufacturers also strongly backed alignment with the EU, with 70% believing any future UK carbon border measure should be aligned with the European scheme. A similar proportion (67%) believe the UK should formally link its Emissions Trading Scheme (UK ETS) with the EU ETS, which would exempt UK business from the EU CBAM.  

In the summer, trade body UK Steel warned that almost 23 million tonnes (Mt) of non-EU steel could flood the UK market if the UK failed to introduce its own CBAM at the same time as the EU in 2026.

The UK consumes only 9Mt of steel, meaning any imported, cheap and high-emission steel would be stacked in stock yards, undercutting local costs and devastating the domestic industry, it said.

The steel industry would also face restrictions in exporting to the EU, where 75% of the UK steel industry valued £3.5bn currently goes. These exports would face a trade barrier from the EU CBAM from 2026 if the UK does not move forwards with its own tax.

UK Steel director general, Gareth Stace, said that the CBAM could deliver a level playing field where imported and domestically produced steel face similar carbon costs.

“Over 90% of the world’s steel producers face little or no carbon costs, whereas UK steel producers face an annual £75m in carbon costs, damaging our competitive position. As the UK steel industry is transiting to green steel production, it is essential that it is not continually outcompeted by high-emission, imported steel,” he said.

The UK had been too slow to react on carbon leakage, he said. “Implementing a UK CBAM alongside other carbon leakage measures can put this right, and the government must urgently act to inject a competitive boast so we can compete in a fierce global steel market.” 

Manufacturers trade body Make UK also supports the CBAM, but a spokesperson said that it wanted to see a flexible approach, as each sector and material has specific circumstances relating to their respective markets, and a CBAM might not be suitable for all.

“The government should engage with all stakeholders in the UK manufacturing sector, including the supply chain, to ensure a comprehensive approach towards achieving environmental goals without imposing a pre-determined solution. Mitigating carbon leakage should provide clarity and long-term certainty to businesses, enabling them to invest and grow,” they added.