UK to introduce carbon levy on imports by 2027

The UK has announced plans 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 prevent UK companies from being undercut by foreign rivals.

Ministers also view the levy as key to preventing the UK from becoming a dumping ground for carbon-intensive goods once the EU brings in its levy 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.

Sector trade body Steel UK also warned the delayed implementation would leave its members at risk from the “dumping” of high-emission steel exports from third countries, which had previously gone to the EU, into the British market.

“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.

Gareth Davies, a Treasury minister, said the delay was due to government efforts to ensure businesses had time to adapt to the new scheme. “We want to work with industry to make sure we get this right, and it will take some time,” he added.

Under current rules, heavy industries have to pay to pollute by buying credits through the UK’s carbon trading scheme, which is designed to encourage manufacturers to reduce emissions. But it also creates the risk they will be undercut by rivals from abroad governed by weaker climate regulations. 

The UK government on Monday said 85 per cent of respondents to a recent survey were concerned about the risk of so-called “carbon leakage” given that other countries were moving more slowly in emissions reductions.

A carbon border tax would add a levy to relevant imports designed to equalise the cost of polluting under a third country’s emissions trading scheme.

UK carbon credits are currently trading well below those in the EU and if that differential remains British companies would face paying a levy on any exports to the bloc when Brussels brings its scheme into force in 2026.

That issue could be resolved if the EU and the UK, which set up its own scheme after Brexit, ended up merging their carbon markets, an idea that Davies said was “on the table” in the longer term.

Tackling climate change globally could eventually require a “unified pricing system”, he said.

Jess Ralston, head of energy at the Energy and Climate Intelligence Unit, said the UK scheme made sense given the EU was pressing ahead and said it sent a more positive message in the wake of UK Prime Minister Rishi Sunak’s decision earlier this year to water down several green policies.

“Having rocked investor confidence with the prime minister’s September net zero speech, this is the government taking a step back in the direction of rebuilding that trust,” she said.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here