UK to introduce carbon levy on imports by 2027

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The UK is set to introduce a carbon border tax by 2027 to try to protect British manufacturers and match similar measures in the EU, but industry has urged ministers to move faster.

Imports of iron, steel, ceramics, cement and other goods from countries with weaker climate regulations than Britain will be subject to a levy to try to make sure UK manufacturers are not undercut by rivals with higher carbon emissions.

Ministers also want to prevent Britain from becoming a dumping ground for carbon-intensive goods after the EU introduces its own carbon border tax in 2026.  

Jeremy Hunt, the chancellor, said on Monday the new rules, which are subject to further consultation next year, should “give the industry confidence to invest in net zero”.

He added: “This levy will make sure carbon intensive products from overseas — like steel and ceramics — face a comparable carbon price to those produced in the UK, so that our decarbonisation efforts translate into reductions in global emissions.”

But Make UK, which represents British industry, said the scheme should be implemented “as soon as possible” to align with the timescale of the EU, which is starting its own carbon border tax in 2026 and has already begun a soft launch.

Likewise Steel UK, which represents the steel industry, welcomed the initiative but criticised the government for introducing it a year later than the EU equivalent scheme.

The group warned that the delayed implementation would leave the UK steel industry at risk from the “dumping” into the UK of high-emission steel from around the world that is currently exported to the EU. UK Steel said 90 per cent of global steel production did not face any carbon costs.

“Despite the steel sector repeatedly warning officials how exposed the UK would be if it did not mirror the EU implementation timetable, government today seems to be actively planning for just that scenario,” said Gareth Stace, director-general of UK Steel.

Under current rules, heavy industries, including steel, in the UK and the EU have to pay for their carbon dioxide emissions by buying credits that are tradable.

The current scheme is designed to encourage manufacturers to reduce carbon emissions, but it also creates the risk they will be undercut by rivals from abroad who face weaker climate rules, reducing the impact of decarbonisation efforts and risking British jobs. 

The UK government on Monday said 85 per cent of respondents to a recent survey were concerned about the risk of “carbon leakage”. 

“Not all jurisdictions are moving at the same pace with the risk that UK emissions reductions do not translate into global emissions reductions, but rather that UK emissions get displaced to other less climate ambitious countries,” it added. 

Under the carbon border tax, covered imported goods will be charged a levy to bridge the gap between the amount their manufacturers paid for their emissions and the amount paid by UK producers.