How is the UK CBAM calculated?
The calculation of the UK CBAM liability will center on the carbon footprint of imported goods, with importers required to pay a carbon price that bridges the difference between the UK’s carbon pricing mechanisms and any explicit carbon price paid in the country of origin (if applicable). Implicit carbon pricing will not be recognized.
The UK CBAM is set to 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. There are two exceptions to this general rule:
- For goods exported under the outward processing procedure and subsequently re-imported into the UK as CBAM goods, the CBAM tax point will be triggered upon entry into free circulation, with the liability based solely on emissions generated during processing outside the UK.
- CBAM goods originating outside the UK and re-imported using the returned goods relief will be exempt from UK CBAM liability, provided they meet the relief conditions for customs purposes. This exemption applies to CBAM goods re-imported within three years in their original, unaltered state, keeping them out of scope and free from CBAM charges.
- 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 50,000 over a rolling 12-month period.
- 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 rate will be adjusted quarterly, reflecting the average UK ETS price over the prior quarter. Importers will self-assess their liability by:
- Multiplying the total emissions per type of good by the applicable UK CBAM rate, and
- Deducting any explicit carbon price already paid in the country of origin, provided that it meets the UK’s definition of an explicit carbon price (such as carbon taxes or emissions trading schemes)
- The UK CBAM will apply to both direct and indirect emissions:
- Direct emissions are those from production processes, including emissions from heating and cooling, whether produced on-site or off-site.
- Indirect emissions cover emissions from electricity consumed during production, ensuring UK CBAM charges reflect the carbon cost for emissions associated with energy consumption in line with the UK ETS and CPS.
- Importers have two options to determine the emissions embodied in imported goods for CBAM liability calculation:
- Actual emissions data: Verified data on the actual emissions generated during production, which aligns with EU requirements and is preferable where available.
- Default emission values: Government-provided default values calculated based on average emissions by product type and key trading partners. From 2027, the government will proceed with a single default value set per product. The methodology for calculation will be confirmed and published in advance of the CBAM introduction in 2027. Default values will be set for an initial period (2027-2030) and will undergo a review before potential adjustments are implemented from 2031 at the earliest.
The first CBAM accounting period will cover imports from January 1 to December 31, 2027, with subsequent quarterly periods beginning in 2028. This structured approach aims to ensure that imported goods meet the same carbon standards as those produced domestically, fostering a level playing field and incentivizing lower-carbon imports.
