The EU Emissions Trading System (ETS) could cost the steel industry more than £300 million a year.
That’s the warning trade body UK Steel and union Community have issued.
In a joint paper the organisations said the ETS is already reducing UK steel’s competitiveness and stifling its ability to invest in innovation.
The report states carbon leakage measures – which are meant to stop the EU ETS affecting the international competitiveness of vulnerable industries like steel – are not delivering the level of support promised.
It adds if they remain unchanged, the ETS will add nearly £30 a tonne to average steel production costs by 2030.
The paper states this could be “disastrous” as contracts can be won or lost on as little as £5 per tonne of steel at today’s production levels.
This would cost the UK steel sector more than £300 million a year in total, it claims.
The European Commission’s reform proposals for the scheme will be “crucial for the sector’s future”, the report states.
UK Steel and Community are recommending a series of reforms which would help UK steel plants operate on a more level playing field
Gareth Stace, Director of UK Steel, said: “The steel sector employs around 30,000 people, many in areas of relatively high unemployment and contributes more than £45 billion to the UK economy.
“The steel sector wants to play its part in meeting the UK’s carbon targets and is actively researching lower carbon production methods.
“But it needs support and the current regulatory regime – and particularly the EU ETS – is hindering rather than helping by reducing our overall competitiveness and removing money each year that could be invested in innovation.”