UK CBAM: Preparing for the 2027 carbon price on high-emission imports

On Oct 30 2024 the UK government gave its response to the policy design consultation for the much-anticipated introduction of the UK Carbon Border Adjustment Mechanism (CBAM). At a glance, the government response confirms that:

•  A UK CBAM will be introduced on January 1, 2027. It will place a carbon price on goods that are at risk of carbon leakage imported to the UK from the aluminum, cement, fertilizer, hydrogen, iron and steel sectors — ensuring that UK decarbonisation efforts lead to a true reduction in global emissions rather than simply displacing carbon emissions overseas.
  
  

• Products from the glass and ceramics sectors will not be in scope of the UK CBAM from 2027, as previously proposed, to allow government and industry time to address feasibility concerns raised throughout the consultation process. The government will continue to work with industry to address these concerns before considering their potential inclusion at a later date.
  
  
• The value of the minimum registration threshold is £50,000, so only businesses importing £50,000 or more of CBAM goods over a 12-month period will need to comply with the UK CBAM.

This is a significant milestone for the UK’s decarbonization efforts. The UK CBAM closely aligns with its EU counterpart. Below we’ll explore the latest details on scope, thresholds and industry impact to help businesses prepare.

Key sectors in scope for UK CBAM

The UK CBAM will apply to imports in the aluminum, cement, fertilizer, hydrogen, iron and steel sectors, all identified as high-carbon, high-leakage-risk products. This scope of goods is closely aligned with the EU CBAM, which should help to deliver consistency and fairness for importers navigating both markets. 

By targeting these sectors, the UK CBAM intends to keep carbon-intensive goods from being redirected to the UK after facing stricter regulations under the EU CBAM, which enters its Definitive period, when a carbon price will have to be paid, one year earlier in 2026. This leads to a real risk that high-carbon material destined for the EU is likely to end up in the UK during this gap.

Notably, the UK government chose not to include products from the glass and ceramics sectors in the initial 2027 CBAM scope. This decision reflects feedback from industry stakeholders who raised feasibility concerns during the consultation process from March 21, 2024 to June 13, 2024. The government plans to continue discussions with these sectors to address technical and operational challenges, leaving the door open for their inclusion at a later date.

New thresholds for compliance

To ease the regulatory burden on smaller businesses, the UK has set a minimum threshold of £50,000 for CBAM compliance, a notable shift from the previous £10,000 threshold. Only importers whose CBAM goods exceed this threshold over a rolling 12-month period will be required to report and pay the associated carbon price. 

This approach offers some relief compared to the EU’s minimum threshold of €150, although it may still present challenges for smaller importers handling low-value goods across sectors.

Emissions reporting: direct and indirect emissions

The UK CBAM will cover both direct emissions (from production processes) and indirect emissions (from electricity consumed during production). This inclusion of indirect emissions is critical for a more comprehensive carbon pricing approach and is in line with the UK ETS and Carbon Price Support (CPS) mechanisms. 

Accurately accounting and enabling comparison between jurisdictions for these emissions can be challenging, especially given local market complexities including regional variations in energy sources and consumption patterns. Ensuring a fair and level playing field will require careful guidance to maintain accuracy and consistency when it comes to indirect embedded emissions.

Penalties and compliance burden

Under the UK CBAM, the primary compliance responsibility will fall on importers, with penalties for non-compliance. However, much of the operational complexity will lie with installations, particularly those outside the UK, which will need to adopt new data-sharing practices to support importers’ reporting needs. 

This division of responsibility mirrors the EU CBAM structure. It will be important for UK importers to engage their suppliers early and ensure they’re equipped for compliance.

Looking ahead — alignment with the EU

Overall, we’re pleased to see that the UK CBAM closely aligns with the EU CBAM in emissions calculations and reporting boundaries, reflecting a concerted effort to create harmonized standards. This alignment is promising for businesses managing trade across both regions, though the time lag before the UK CBAM's implementation means the UK could face an influx of high-carbon goods that might otherwise be directed to the EU market under stricter carbon pricing.

Our takeaways in short are as follows:

• It’s good to see that the scope of goods aligns closely to the EU CBAM
• A £50,000 threshold is good — but may still be too low to significantly reduce burden for importers of low-value goods
• Inclusion of indirect emissions is encouraging although it may be difficult to ensure a level playing field given the complexities of electricity market carbon pricing
• Similar to EU CBAM, penalties remain on importers while the complex work falls on installations
• We’re hopeful that the UK CBAM will use similar system boundaries, or guidelines, as the EU CBAM for calculating emissions intensities

With its initial framework now in place, the UK CBAM promises to be an instrumental policy in leveling the playing field for UK industries and setting a benchmark for sustainable imports. 

What’s next? 

Businesses should conduct a thorough assessment of their impacted UK CBAM goods suppliers, start engagement early, and seek out lower-carbon suppliers to avoid higher costs and reporting challenges.

A platform like CarbonChain can help your suppliers measure the carbon intensity of their facilities, identify lower-carbon suppliers, track the emissions embedded in your imported products, and simplify and streamline CBAM reporting and compliance.

If you need help understanding what the new UK CBAM means for your business, reach out to the CarbonChain team to speak to a CBAM expert today.

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