Small and medium-sized British manufacturers are facing particularly acute challenges after the government failed to secure an expected exemption from the European Union’s carbon border adjustment mechanism before Christmas. The unsuccessful negotiation means businesses of all sizes will encounter detailed paperwork requirements starting in January, but industry experts warn smaller enterprises will struggle most with the administrative burden.
The carbon border adjustment mechanism requires comprehensive documentation of carbon emissions throughout the manufacturing process, affecting approximately £7 billion in UK exports to the EU. Products subject to these requirements span numerous categories including steel and aluminium goods, household appliances, automotive components, fertilizer, cement, and energy. With Brussels confirming no pre-Christmas implementation of the anticipated exemption, UK Steel estimates relief won’t arrive before Easter 2025, creating an extended compliance period.
Political dynamics within the European Union made a rapid agreement unlikely from the beginning. The negotiation mandate received approval only in early December, making any deal outside a comprehensive political framework involving all 27 member states practically impossible—particularly given that some nations have minimal investment in UK-specific trade arrangements. Government insiders are now advising businesses to prepare for the mechanism’s implementation, with guidance available through the Department for Business and Trade.
Frank Aaskov of UK Steel has specifically highlighted concerns for small and medium-sized enterprises, describing the paperwork as “quite a burden” for these operations. Manufacturing trade body Make UK similarly characterizes the forthcoming documentation as “extensive” and warns of significant business impacts. Beyond administrative challenges, the competitive implications are serious, particularly in the steel sector where margins are extremely tight. Even the modest-seeming €13 per tonne tax on hot rolled wire (costing approximately €650 per tonne) can prove decisive against Chinese competition, where cost differences of just €5 per tonne frequently determine contract outcomes.
These new requirements compound existing challenges for British manufacturers, particularly in steel where 50% EU import tariffs introduced earlier this year already create substantial obstacles. The negotiation process ahead involves two stages: establishing terms of reference, then addressing emissions trading system compatibility. While tax payments aren’t required until 2027 and could potentially be cancelled through successful negotiations, administrative obligations begin immediately in January. EU Climate Commissioner Wopke Hoekstra has indicated constructive discussions with UK counterparts and suggested immediate costs should be limited given Britain’s decarbonization progress, but emphasized the importance of proceeding methodically. British government representatives maintain that securing a carbon linking agreement to protect the £7 billion export market remains their priority.