UK CBAM: The UK's Carbon Import Levy

What is the UK Carbon Border Adjustment Mechanism?

The UK CBAM (Carbon Border Adjustment Mechanism) is a significant step towards achieving the UK’s decarbonization goals and combating climate change.

Goods imported into the UK from countries with a lower or no carbon price will have to pay a levy by 2027.

On 30th October 2024 the UK announced key updates to its approach to CBAM:

• UK CBAM date is confirmed as 1st January 2027. This means a carbon price on goods in the aluminium, cement, fertiliser, steel, hydrogen, iron, and steel sectors.
• It won’t include glass and ceramics products, as previously proposed.
• Only businesses importing £50,000 or more of CBAM goods over a 12-month period will need to comply.

Like the EU CBAM, unprepared businesses who import or export to the UK could face higher costs and carbon reporting challenges.

When is CBAM being implemented in the UK?

The UK Carbon Border Adjustment Mechanism (CBAM) is set to be implemented by January 1st 2027. Initially, the UK government committed to an implementation as early as 2026, but updated the timeline following its public consultation.

Legislative process of CBAM UK

The UK government is currently working on the legislative process to establish the CBAM. This involves consultations with various stakeholders, industry experts, and policymakers to design an effective mechanism that aligns with the nation's climate goals.

Latest UK CBAM consultation

The latest UK CBAM consultation launched on 21 March 2024 and sought views on proposals for the design and administration of the regulation, from importers and their agents, other businesses, individuals, tax advisers, trade and professional bodies and other interested parties, including those overseas.

Need support understanding the impacts of UK CBAM on your business?

Previous UK CBAM consultations

A consultation ran from 30 March until 22 June 2023. The UK government published a consultation document and factsheet on measures to mitigate future carbon leakage risk, which included potential policies such as:

• The overarching pricing mechanism;
• Mandatory product standards (MPS) that would establish an upper limit on the carbon emissions embodied in specific industrial products. These standards could be designed to become more stringent over time;
• Demand-side policies aimed at promoting the market for low carbon goods, such as product labelling based on voluntary product standards and initiatives for public procurement of environmentally friendly products;
• An embodied emissions reporting system, which could facilitate the implementation of the CBAM policy by providing accurate data on the carbon footprint of products.

On 18 December 2023, the UK government published its consultation outcome following over 160 submissions from stakeholders.

There will be further consultations in 2024 regarding the products covered by the UK CBAM.

How is the UK CBAM calculated?

The calculation of UK CBAM certificate price will be based on the carbon footprint of imported goods. Companies exporting to the UK will be required to pay a carbon price, reflecting the difference between the carbon price in the country of origin (if applicable) and the UK's carbon price (which is currently one of the highest of all major trading partners).

There is currently a question mark over whether the UK will need to peg the UK ETS price to the EUA price, because if the allowances are not at parity, it will create a significant administrative burden in calculating border levies.

The measurement of emissions for UK CBAM reporting is likely to be similar to the EU's methodology for calculating CBAM emissions and declaring CBAM emissions.

Subject to the outcome of the March 2024 consultation, the UK CBAM will work in the following way:

• The "tax point," which is when the CBAM liability arises, will be the date the good is released into the UK domestic market if customs controls are in place, or the date the good enters the UK in the absence of customs controls.
• Individuals will not need to register or account for CBAM if the total value of their CBAM goods passing a tax point is below a minimum threshold of GBP 10,000 over a rolling 12-month period. Instead, they must provide basic information to demonstrate compliance.
• Those liable will be required to submit a CBAM return and pay the due amount at the end of each accounting period. The first accounting period will cover imports from January 1 to December 31, 2027, and subsequent periods will be quarterly from 2028 onwards.
• The CBAM liability is calculated by multiplying the total emissions per type of good by the applicable UK CBAM rate, deducting any carbon price already paid overseas — a self-assessment approach.
• Importers have two options to determine the emissions embodied in imported goods for CBAM liability calculation:

1. Using default values provided by the UK government.
2. Using actual data on the emissions embodied in the CBAM goods.

How do companies prepare for CBAM in the UK?

Companies can prepare for the UK CBAM and stay competitive in the UK market by:

• Conducting a thorough assessment of their carbon emissions;
• Implementing measures to reduce their carbon footprint;
• Partnering with lower-carbon suppliers;
• Investing in cleaner technologies.

Companies can prepare for the CBAM by using CarbonChain to measure the emissions embedded in their imported products and the carbon intensity of supplier facilities, as well as identify lower-carbon suppliers.