The UK has confirmed that it will introduce a Carbon Border Adjustment Mechanism (CBAM) starting January 1, 2027, aimed at tackling carbon leakage and supporting its target for net zero emissions by 2050. This move aligns with the UK’s commitment to reduce emissions by 68 percent by 2030 and by 81 percent by 2035, compared to 1990 levels.
Why CBAM is needed
The UK Emissions Trading Scheme (UK ETS) is reducing allowances by 45 percent between 2023 and 2027, pushing carbon prices higher. Free allowances are guaranteed until 2026, with their future under review. While this accelerates decarbonization, it also increases the risk of industries relocating production abroad, where climate regulations are weaker, a phenomenon known as carbon leakage.
To address this risk, the CBAM will cover emissions-intensive imports such as aluminum, cement, fertilizer, hydrogen, and iron and steel. Importers will pay a carbon price based on embedded emissions, either through verified data or government-set default values. The tax rate will also reflect the domestic carbon price that would have been incurred, had the goods been produced in the UK. The first tax returns and payments are due in May 2028.
Scope and coverage
The CBAM will apply to specific goods identified by UK tariff commodity codes under the Combined Nomenclature (CN), linked to the Harmonized System (HS). While upstream materials such as aluminum sheets and steel bars are included, finished products such as car doors are excluded. Both direct emissions and indirect emissions fall within the scope of the CBAM.
Rate and relief
- CBAM rates will be set quarterly from 2027, mirroring the UK ETS allowance price and Carbon Price Support (CPS).
- Importers may claim carbon price relief if equivalent carbon costs were paid abroad.
- A registration threshold of £50,000 per year ensures small importers are exempt, while still capturing over 99 percent of imported emissions.
Comparison with EU CBAM
While the UK and EU CBAMs share the same core purpose, there are key differences:
| Aspect | UK CBAM | EU CBAM |
|---|---|---|
| Sectors covered | Aluminum, cement, fertilizer, hydrogen, iron & steel. Electricity not included in the UK CBAM due to different carbon leakage risk profile | Aluminum, cement, fertilizer, hydrogen, iron & steel, electricity |
| Implementation timeline | Full obligations start Jan. 1, 2027. No prior reporting period. | Reporting-only period started Oct. 2023. Liabilities apply from 2026. |
| Mechanism | Works like a domestic tax. Importers declare embodied emissions and pay HMRC after each accounting period. | Importers must buy and surrender CBAM certificates equivalent to emissions of imports. |
| Emissions reporting | Based on verified actual emissions data or default global average values (from 2027). | Verified actual emissions data required; default values based on exporting country averages, with adjustments. |
| Verification of emissions | Independent bodies accredited by members of the International Accreditation Forum (IAF). | Independent verifiers accredited under EU accreditation frameworks. |
| Threshold for registration | Only applies if the total value of CBAM imports in a rolling 12-month period meets or exceeds £50,000. | Exemption for importers of less than 50 ton per year of CBAM goods. |
Looking ahead
The UK and EU are working on linking their ETS systems, which could lead to mutual exemptions from CBAM obligations. Future updates will refine emissions methodologies, align with global carbon pricing, and review the role of free allowances in maintaining competitiveness.