UK CBAM: What You Need to Know
The UK’s Carbon Border Adjustment Mechanism (CBAM) is expected to come into effect in January 2027, helping the UK work towards net-zero targets. In this article, we outline the commodities included in the UK CBAM, the key differences to the EU CBAM, and what you can do to minimise disruption as the regulation approaches.
Contents:
- What is the UK Carbon Border Adjustment Mechanism?
- Which commodities are covered by the UK CBAM?
- How is UK CBAM liability calculated?
- The key differences between the EU’s and UK’s CBAM regulations
- What is the timeline for the UK Carbon Border Adjustment Mechanism?
- What you can do to prepare for the UK’s CBAM now
What is the UK Carbon Border Adjustment Mechanism?
As with the EU’s CBAM initiative, the UK Carbon Border Adjustment Mechanism is designed to combat “carbon leakage”. This is where the carbon footprint of the market is elevated due to embedded emissions inside imported goods, where domestically produced goods are held to higher environmental standards.
With CBAM, goods placed on the market from third countries will be required to collect emissions data and pay a CBAM tax to offset them. This works alongside initiatives like the Emissions Trading Scheme (ETS), which promote carbon reduction by capping emissions and require the purchase of other companies’ allowances if you would like to exceed your allocation.
Which Commodities are Covered in the UK CBAM?
For the initial rollout of the UK’s CBAM, the following sectors will be subject to CBAM reporting and the subsequent payment of CBAM tax:
- Aluminium*
- Cement
- Fertiliser*
- Hydrogen
- Iron & Steel
*Note that the emissions for aluminium and fertiliser include commodity-specific gases. For aluminium, perfluorocarbons (PFCs) such as tetrafluoromethane and hexafluoroethane are included, and nitrous oxide (N2O) data must be collected for fertiliser. This is because these greenhouse gases have a greater impact on the atmosphere than carbon dioxide.
Unlike the EU, the UK’s CBAM does not include electricity. This is because most imported electricity comes from the EU, which has its own ETS, and Norway, which has a carbon tax and produces mainly renewable energy. Therefore, there is no need for CBAM measures on the UK’s electricity imports.
How is the UK CBAM Liability Calculated?
Your CBAM charge is calculated based on the embedded emissions within your goods and the UK CBAM rate for your goods classification. In the UK, it is anticipated that there will be a single rate for each sector: aluminium, iron and steel, fertiliser, hydrogen, and cement.
If there is any allowable relief for previous carbon offsetting at origin, this is deducted from your CBAM charge to create your UK CBAM liability. Allowable relief is only for carbon costs that were already paid in the country of origin, if they are recognised as equivalent by the UK.
CBAM charge – CBAM relief = CBAM liability
The emissions data required will also depend on your classification, and will include both direct and indirect emissions (scope 2).
The Key Differences Between the EU’s and UK’s CBAM Regulations
Although the EU’s and UK’s Carbon Border Adjustment Mechanisms are similar, there are some key differences which you need to know:
CBAM certificates vs CBAM tax
In the EU, you must purchase CBAM certificates (also known as CBAM credits), which are then surrendered to the authorities against your liability.
In the UK, a direct CBAM tax is levied instead – there are no trading mechanisms involved.
CBAM de minimis threshold
Since the Omnibus I package for CBAM, the EU has simplified their de minimis threshold so that importers are only liable for CBAM charges if they import more than 50 tonnes in a year. Although this is a relief financially, it remains unclear whether or not importers will still need to complete administrative tasks if they do not meet the de minimis threshold.
In the UK, the threshold is GBP 50,000 per annum from January 2027. This is not per calendar year or tax year, but a rolling 12-month window which begins on the 1st of January 2027. Therefore, the window of eligibility will be smaller until the first year has passed.
On the first of every month, you will need to look at your previous 12 months to ascertain if you are eligible for CBAM measures. You will also need to review incoming orders to check if you will meet the threshold in the next 30 days.
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Emissions Data
In the UK, it is anticipated that you will have default values available for your classification based on the net weight of your goods. This is not available in the EU, where default values were only provided for CBAM reporting during the first part of the transition period.
UK CBAM measures can always change, so it is worth working with your suppliers to see which data they hold and whether they can provide a complete emissions profile.
For more information on what’s included in these reports and how to do your due diligence with your suppliers, contact one of our experts for assistance.
Commodities Covered
Although the sectors are the same (less electricity), there are specific commodities which are not included in these sectors. These are not the same in both the EU and the UK. For example, some scrap metals are currently exempt in the UK.
It is important to know whether your goods classification is included in CBAM because this also goes towards your de minimis calculations. If you are or are not including your goods in error, then you could be liable for penalties or back-payment of CBAM liability.
For help with classification and understanding your EU or UK CBAM obligations, contact one of our experts for assistance.
What is the Timeline for the UK Carbon Border Adjustment Mechanism?
Unlike the EU CBAM, there will be no transition period where reports are due, but CBAM charges are not. From the 1st of January 2027, full CBAM measures will be in place.
For the first year, an annual CBAM report will be due. From 2028, these will move to quarterly reports with a two-month submission window.
What You Can Do to Prepare for the UK’s CBAM Now
Although the UK Carbon Border Adjustment Mechanism will not be in effect until 2027, it’s important to begin preparing now. Here are your top three priorities in the short term:
- Verify your goods classification: Your CBAM obligations are dependent on your sector and commodity code. Ensure that this is correct so that you know what you need to do.
- Liaise with your suppliers: Work with your partners to ascertain which data is available, the processes for sharing this information, and where you need to make improvements.
- Create a reliable data infrastructure: Do an information health check so that you have the clean data you need when declaring CBAM values or testing de minimis levels.
Customs Support Group provides customs and trade solutions throughout Europe, with the experience, knowledge, and technology to help you make CBAM simple.
For help with EU or UK CBAM, contact us for specialist support or register for our upcoming CBAM webinar.
