The UK government published information on sectoral rates and default emissions values for calculating importers' liabilities under its Carbon Border Adjustment Mechanism (CBAM) on October 16. The mechanism, which will enter into force on January 1, 2027, aims to ensure that covered imports face a carbon price comparable to that paid for equivalent production in the UK.
Illustrative CBAM rate for iron and steel set at £9.69/tCO₂e
HM Revenue & Customs (HMRC) published an illustrative CBAM rate of £9.69 per metric ton of carbon dioxide equivalent for the iron and steel sector. The calculation uses the average UK Emissions Trading Scheme (ETS) price for July-September 2026 and preliminary free allocation data.
HMRC stressed that the figure was published to demonstrate the calculation methodology, does not create any tax liability and should not be interpreted as a forecast of the rate that will apply when the mechanism begins. The official rates for the first quarter of 2027 will be published before the end of the year.
Calculation to reflect ETS prices and free allowances
Sectoral CBAM rates will be calculated using the arithmetic average of UK ETS auction clearing prices in the preceding quarter, adjusted to reflect the proportion of the sector's direct emissions covered by free allowances and the gradual withdrawal of those allowances.
The published calculation uses an average ETS price of £58.15/tCO₂e, while the free allowance phase-out reduction factor for 2027 is 97.5 percent across all CBAM sectors.
HMRC stated that the sub-installations to be included in the calculation and the free allocation data remain subject to further checks by the UK ETS Authority. Any revisions resulting from those checks will be reflected in the final baseline free allocation percentage and the CBAM rate for the first quarter of 2027.
Rates will be updated quarterly. Importers will use the rate applicable to the relevant sector and the quarter in which the goods were imported into the UK.
Single product-level default values to apply regardless of origin in 2027-2028
The government also published product-specific default emissions values that can be used where actual emissions cannot be determined. For iron and steel products, a single default value will apply to each CN code regardless of the country of origin.
The values were calculated on a trade-weighted average basis, excluding data on imports from the EU. A 10 percent markup was applied across all sectors except fertilizers, including iron and steel.
The government stated that its guiding principle is to ensure that using default values provides no advantage over determining actual embodied emissions. The markup is intended to support the objectives of CBAM and facilitate a transition to actual emissions reporting.
These values will apply in 2027 and 2028. The UK will introduce country-specific default values from 2029 and review the appropriate markup at that stage.
The published values for selected iron and steel products are shown below. The applicable value must be determined using the relevant eight-digit CN code.
| CN code | Product | Default emissions value (tCO₂e/mt of product) |
| 72031000 | Direct reduced iron (DRI) | 1.149 |
| 72071114 | Certain square or rectangular semi-finished products containing less than 0.25 percent carbon, with a thickness of up to 130 mm | 2.856 |
| 72071210 | Rolled or continuously cast semi-finished products containing less than 0.25 percent carbon, with a width at least twice their thickness | 3.571 |
| 72083900 | Non-pickled hot rolled coil, at least 600 mm wide and less than 3 mm thick | 3.468 |
| 72091790 | Certain cold rolled coils, at least 600 mm wide and 0.5–1 mm thick | 2.648 |
| 72104900 | Certain non-corrugated galvanized flat products, at least 600 mm wide | 3.049 |
| 72131000 | Ribbed hot rolled bars and rods in coils | 3.309 |
| 72142000 | Bars and rods with ribs or other deformations produced during rolling | 3.040 |
Exclusion of EU data also linked to planned ETS linkage
The government stated that excluding EU data is intended to ensure that default values better reflect the emissions embodied in imports for which those values are most likely to be used. It also linked this approach to the commitment to connect the UK and EU emissions trading schemes, stating that such linkage would result in EU-origin goods being exempt from UK CBAM.
Rules clarified for combining precursor and final product emissions data
According to HMRC's guidance, default values may be used for precursor goods while actual emissions data is used for the relevant processes that convert those inputs into final goods. However, actual emissions data cannot be used for precursor goods in combination with a default value for the final product.
A CBAM return submitted using default emissions values cannot subsequently be amended with actual emissions data.
