The UK publishes draft Carbon Border Adjustment Mechanism (CBAM) legislation

The UK government has published draft legislation for its Carbon Border Adjustment Mechanism (CBAM), set to commence on 1 January 2027. This initiative seeks to impose a carbon price on imports of emissions-intensive goods such as aluminium, cement, fertilisers, hydrogen, iron and steel – aligning imported products with the UK’s domestic carbon pricing. The CBAM aims to prevent carbon leakage and ensure fair competition for UK industries.

Stakeholders are invited to provide feedback on the draft legislation to ensure that it delivers the government’s policy correctly and effectively.

Alongside the draft legislation, the government is also publishing a CBAM policy update, outlining the scope and design of the tax. It sets out key policy decisions made following the government’s response to the 2024 consultation.

A list of the commodity codes within scope of the CBAM can be found here.

Some of the key policy decisions detailed in the policy update relate to:

• How the rates for the CBAM charge will be calculated
• How the government will approach free allocation adjustments
• Further flexibility in the legislation to allow the government to implement international agreements or arrangements in relation to carbon prices in other jurisdictions, and evidence requirements
• The inclusion of powers to confer an exemption that will be available for goods originating in a jurisdiction that has entered arrangements to link their Emissions Trading Scheme with the UK Emissions Trading Scheme
• The inclusion of provisions designed to reduce administrative burdens by treating two or more liable people as a group, with the group representative responsible for submitting returns and paying the CBAM liability on behalf of the group
• The move to quarterly accounting periods from 1 January 2028, with a two-month return and payment window
• Further detail or what will be required from a liable person on their CBAM returns

Businesses importing goods in the aluminium, cement, fertiliser, hydrogen, iron and steel sectors should take proactive steps to prepare for its implementation on 1 January 2027. Key actions include:

• Review the draft legislation: understand the scope, emissions reporting requirements, and calculation methods for CBAM liabilities
• Assess import activities: determine if your imports fall within the £50,000 annual threshold, which mandates registration and compliance
• Evaluate emissions data: decide whether to use actual verified emissions data or default values for reporting, and establish systems to gather necessary information
• Identify points in the supply chain where CBAM will be incurred, whether it can be passed on as a price adjustment under contracts, and the estimated cost
• Engage with the consultation: provide feedback on the draft legislation by 3 July 2025 to influence final decisions
• Explore decarbonisation opportunities and investigate the use of recycled or secondary materials to reduce future CBAM liabilities and align with environmental objectives