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Britain exported more than 2.5 million tonnes of steel to Europe last year, UK Steel said. That trade would face the CO2 levy, unless Britain matched the EU's carbon pricing policies or linked its carbon market to the bloc's. Without a market link, Energy Aspects expects UK carbon prices to trade below EU CO2 prices until the late 2020s - exposing UK firms to the EU's border levy. In 2026, when the EU carbon border levy will kick in, Energy Aspects expects the UK CO2 price to be around 55 pounds (63.71 euros), versus an expected EU CO2 price of 108 euros. The UK government ran a publish consultation earlier this year on policies to support British industries as they decarbonise, including a possible UK carbon border levy.

Persons: Frank Aaskov, Benjamin Lee, Susanna Twidale, Kate Abnett, Sharon Singleton Organizations: European Union, ETS, Steel, Energy, UK, Britain's Department for Energy Security, Thomson Locations: BRUSSELS, London, Britain, Europe

An ETS sets a cap on the amount of CO2 emissions that a sector, or group of sectors, can produce. The system creates CO2 permits, called EU Allowances (EUAs) for those emissions, which companies must buy for each tonne of CO2 they emit. CO2 permits are traded on the open market, meaning companies, traders and investors buying them pay the same price. Critics say by making it cheaper to pollute, free permits have reduced the incentive for industries to reduce their emissions. Companies that already pay CO2 costs in the country where the goods were produced can be exempted from the EU levy.

The more emitters have to pay for EU carbon permits to cover each tonne of C02 they produce, the greater the incentive to invest in low carbon technologies and switch to less polluting fuels. Still, rising carbon prices are a cause of political tensions in the EU and breaching the 100 euro threshold is likely to reignite debates over prices. Spanish Prime Minister Pedro Sanchez last year called for a CO2 price cap to help tackle soaring inflation. Other EU countries view a robust carbon price as vital to meeting climate goals. Years of weak prices followed until CO2 prices began to recover in 2018 when the EU agreed to remove surplus permits from the market.

The aim is to shield European households and businesses from the kind of gas price spikes experienced since Russia's invasion of Ukraine. WHY CAP GAS PRICES? Gas prices have eased in recent months as the EU agreed some emergency measures, including obligations to fill gas storage, but they remain high. The EU price cap would not drop below 180 eur/MWh, even if the LNG price fell to far lower levels. The EU price cap is designed to be a temporary fix that would apply for one year.

The price cap idea has led to persistent disagreements between the EU's 27 member states. Belgium, Greece, Italy and Poland are among the countries most vocal in calling for a gas price cap to be implemented, while the bloc's largest economy Germany has led the opposition. Historically, the gas price at the TTF hub has been used as a benchmark for LNG deliveries into Europe. PRICE CAP ON RUSSIAN GASThe Commission suggested a Russian gas price cap in September, but dropped the idea after resistance from central and eastern European countries worried Moscow would retaliate by cutting off the gas it still sends to them. Given that fall, some EU diplomats said a price cap would do little to reduce European gas prices, and would function as more of a geopolitical move to cut revenues to Moscow.

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