December 2023 | The implementation of the Carbon Border Adjustment Mechanism (CBAM) import regulations in the United Kingdom, scheduled to take effect by 2027, is anticipated to impact the supply and cost of stainless steel imports in the country.
Currently, the UK heavily relies on stainless steel imports and does not impose safeguard measures or trade defense restrictions on overseas materials. However, with the introduction of CBAM, tariffs based on the embedded carbon emissions of steel products are expected to be imposed. In 2022, the UK imported 282,212 tonnes of stainless steel, witnessing a 7% decline over five years. Year-to-date figures until the end of October showed an 11.6% decrease, although there was a 9% increase in volumes in October.
Anticipated Impact on Stainless Steel Tariffs
The UK’s CBAM closely mirrors the European Union’s CBAM scheme, with the UK version and associated levy payments set to commence a year later. According to the UK Government’s announcement in December, goods imported from countries with lower or no carbon prices will be subject to a CBAM levy, ensuring parity with domestically produced items in terms of carbon pricing.
While many EU market participants have faced administrative challenges with CBAM reporting, there is optimism regarding positive outcomes, with expectations that it will help maintain the competitiveness of EU producers against imports despite the costs associated with decarbonization. However, UK industry bodies, while acknowledging the protection of domestic industries, express concerns about the administrative burden and added carbon prices associated with CBAM for stainless steel traders.
Industry Response and Prospects
During the research period in December, respondents highlighted the negative effects of CBAM on their businesses. Some businesses are outsourcing administrative tasks, while others are hiring staff to manage paperwork, payments, and avoid fines. The specific products covered by UK CBAM will be determined through consultation with the industry in 2024, and the carbon price related to embedded emissions is yet to be decided.
EU-US Steel Trade ‘Truce’
Additionally, the UK government plans to reform its Emissions Trading System (ETS), aiming to provide effective financial incentives for industries to decarbonize. Meanwhile, the EU and the US have agreed to suspend tariffs on steel and aluminum until March 31, 2025, as progress on the EU-US low carbon steel trade agreement stalled in December. The extension is expected to save EU exporters approximately EUR 1.5 billion in tariffs annually.