The UK government has released its second draft of rules for its Carbon Border Adjustment Mechanism (CBAM), which is due to enter into force on January 1, 2027. The mechanism will apply across the whole of the UK including Northern Ireland.
The draft also extends CBAM treatment to goods entering the UK from the Crown Dependencies, Overseas Territories, and the UK Continental Shelf, meaning the regime is designed to capture a broad set of inbound movements beyond standard third-country imports.
Sector coverage and excluded goods
The mechanism will apply a carbon price to emissions embodied in imports of specified goods in five sectors: aluminum, cement, fertilizer, hydrogen, and iron and steel. Within each sector, CBAM coverage is limited to specific goods, rather than an across-the-board sector approach.
The draft also confirms that certain goods will be excluded even within covered sectors, including imported scrap in the aluminum and iron and steel sectors, reflecting an intent not to penalize recycled inputs.
A person must register for UK CBAM with HM Revenue & Customs once the total value of CBAM goods imported, or expected to be imported, reaches or exceeds the £50,000 registration threshold.
What importers must provide: registration and returns
At the registration stage, importers must provide core identification and business information, including contact details, business structure, EORI and VAT numbers, plus the value and expected weight of CBAM goods imported or to be imported. The value is determined in line with customs valuation rules.
For CBAM returns, importers must report at consignment level and provide, for each CBAM good, the eight-digit commodity code, product weight, emissions data (or default values), the amount of carbon price relief, and the place of origin. A declaration confirming the accuracy of the return is also required, alongside recordkeeping to substantiate origin.
The rules also specify that each consignment of the same CBAM good must be reported separately, and where multiple CBAM goods are shipped together, they must be reported separately as well.
Exemptions and special treatments
The second draft includes exemptions and exclusions that narrow liability in specific cases. Private individuals importing goods for non-business use are not liable. Goods of UK origin are outside scope. Certain returned goods meeting defined criteria are exempt, as are imports under full temporary admission relief.
For complex goods, the draft also sets out an important calculation boundary: emissions from UK-produced precursor goods contained within imported complex CBAM goods are excluded from the CBAM calculation.
The draft defines the weight of a CBAM good as its net weight at the time of import, excluding packaging, expressed in kilograms. Importers must keep records supporting product weight. Where necessary, HMRC is empowered to determine weight using estimates, creating an enforcement backstop if weight evidence is missing or unreliable.
Carbon price setting and carbon price relief
The CBAM rate is linked directly to the UK carbon market. Importers will use the average UK ETS auction price from the preceding quarter, with adjustments that reflect sector-specific free allocation levels.
Carbon price relief may be claimed when a good is produced at an installation subject to a qualifying carbon pricing scheme, provided verification conditions are met. The draft requires independent, accredited verifiers to confirm key variables, including annual emissions, emissions subject to carbon pricing, free allocations, and any monetary support received. To claim relief, importers must obtain a carbon pricing verification form completed by the verifier.
Where actual emissions data are not available, importers may rely on default emissions values. From January 1, 2027, the UK plans to set one default emissions value per CBAM good and publish these values in advance.
The draft describes the effective carbon price calculation as a step-by-step process based on total emissions and the carbon costs applied, with relief calculated by multiplying the effective carbon price by the emissions embodied in the product. Relief cannot exceed the CBAM liability and must be converted into sterling.
Accounting periods, filing and payment deadlines
The first accounting period runs for the full year January 1 to December 31, 2027, with returns and payments due by May 31, 2028. From January 1, 2028, the system moves to quarterly accounting periods with fixed deadlines:
• 1 Jan–31 Mar 2028: due 31 Jul 2028
• 1 Apr–30 Jun 2028: due 29 Sep 2028
• 1 Jul–30 Sep 2028: due 30 Nov 2028
• 1 Oct–31 Dec 2028: due 28 Feb 2029
Reimbursement rules and recordkeeping obligations
The draft includes reimbursement provisions requiring that any amounts repaid are passed on to the relevant parties within a specified period and without deductions. Any amounts not reimbursed must be returned to the tax authority. Claimants must retain reimbursement records, including recipient details, amounts, and dates, for six years.
Separately, importers must keep records showing the commodity code, import date, value, and weight of CBAM goods, and retain these records for at least six years, aligning with the broader compliance architecture in the draft rules.
For steel industry, commodities and their codes within scope of CBAM can be found below:
| Product code | Product |
|---|---|
| 2601 12 00 | Agglomerated iron ores and concentrates, other than roasted iron pyrites |
| 72 | Iron and steel (except certain ferro-alloys and scrap) |
| 7301 | Sheet piling of iron or steel; welded angles, shapes and sections |
| 7302 | Railway or tramway track construction material of iron or steel |
| 7303 00 | Tubes, pipes and hollow profiles, of cast iron |
| 7304 | Seamless tubes, pipes and hollow profiles, of iron or steel |
| 7305 | Other tubes and pipes with circular cross-sections, external diameter exceeding 406.4 mm |
| 7306 | Other tubes, pipes and hollow profiles, of iron or steel |
| 7307 | Tube or pipe fittings, of iron or steel |
| 7308 | Structures and parts of structures, of iron or steel |
| 7309 00 | Reservoirs, tanks, vats and similar containers, capacity exceeding 300 l |
| 7310 | Tanks, drums, cans and similar containers, capacity not exceeding 300 l |
| 7311 00 | Containers for compressed or liquefied gas, of iron or steel |
| 7318 | Screws, bolts, nuts, rivets, washers and similar articles, of iron or steel |
| 7326 | Other articles of iron or steel |