Getting ready for the Carbon Border Adjustment Mechanism

The UK’s Carbon Border Adjustment Mechanism (CBAM) legislation was published in May. More recently, in July, HMRC laid secondary legislation before Parliament and published a package of supporting guidance.

This should not be confused with the EU’s CBAM, which shares the same name but operates radically differently, as a certificate-based system. CBAM certificates are priced against the EU Emissions Trading System and are purchased or surrendered annually.

UK CBAM, by contrast, is a direct tax on the calculated carbon content of goods, with a fixed rate paid to HMRC.

The intention of the UK’s CBAM is similar to that of the EU system, but it goes about it more directly: Designed to equal the carbon price paid by UK producers, the tax is charged on the embedded carbon emissions within imported CBAM goods.

There are other differences, too. EU CBAM, for instance, covers imports of iron and steel, cement, fertilisers, aluminium, electricity and hydrogen. UK CBAM excludes electricity, while, initially, the government contemplated including glass and ceramics in the scope for UK CBAM.

The system will launch on 1 January 2027 and is set to affect about 10,000 UK businesses: those who have imported £50,000 or more in scope materials in the last 12 months, and those planning to do so in the next 30 days. Both must register for the tax.

Those not directly impacted, meanwhile, may need to consider indirect effects; UK businesses buying these product categories from UK suppliers may find that the suppliers are passing on their additional cost, as part of their pricing.

Primary legislation for CBAM is found in the Finance Act 2026, but the secondary legislation was only laid out in July. This provides further details of how CBAM will work in practice, including:

• Record keeping, with importers required to keep records of all CBAM goods imported, including commodity code, date of import, value and weight in the form of customs declarations or other documents relating to import of goods, such as import entry acceptance advice and bills of lading documents

• Registration, with requirements to keep records of the information provided in the registration, evidence used to support it, and records relating to the value of CBAM goods imported and how these were calculated

• Returns, with each consignment reported separately on the return, with the commodity code, net weight, emissions intensities, carbon prices in qualifying carbon pricing schemes and countries of origin

• Assessment of weight of the CBAM goods with records of how the figure was arrived at

Importantly, the updated policy summary following publication of the secondary legislation also confirms how the CBAM liability will be set.

The CBAM liability calculation is a three-step process:

• Take the imported embodied emissions

• Multiply this by the CBAM rate, which will be set for each sector quarterly

• Deduct direct carbon taxes paid in other territories (calculated by multiplying relevant imported embodied emissions by the effective carbon price)

This gives the CBAM liability.

Crucially, though, the imported embodied emissions can either be taken from default emissions values that the government will determine (and on which further details will be forthcoming before January) or by using actual emissions data from suppliers.

As the policy summary makes clear, the latter option brings additional reporting and administrative requirements: “If using actual emissions data, the liable person will need to obtain the relevant verified emissions intensity data from the producer of the CBAM goods. They will need to acquire this information, expressed in tonnes of carbon dioxide equivalent (tCO2e per functional unit), from their supply chains, along with evidence that these emissions figures have been verified by a qualifying verifier.”

This also carries an opportunity, however, for those sourcing from more efficient and environmentally friendly suppliers. For those importing relatively small amounts over the £50,000 threshold and without close relationships with suppliers, the default imported embodied emissions values may prove more convenient (although it will be worth keeping an eye on the levels they are set).

However, for larger importers with suppliers who have better than average environmental performance, ensuring visibility of actual emissions and putting in place record keeping proving it is likely to prove a worthwhile investment.

As the implementation date of the new tax creeps closer, affected businesses should be reviewing their supply chains now and reaching out to suppliers. Those that are operating more sustainably, and can efficiently capture the information to evidence it, could find CBAM brings them a competitive edge.

Approval code: BTSHH082646