EU Carbon Border Adjustment Mechanism - Taxing future carbon emissions

Governments know that to meet their net zero targets for carbon emissions domestically, they could be putting their industries at a cost disadvantage. There is also a risk that, overall, the effect may be to 'export carbon emissions' by importing cheaper goods from other countries that have not imposed tougher emissions standards. 
 
'Carbon leakage' caused by importing high-emission products made in other countries is a well-established problem, and needs to be addressed if net zero targets are to be achieved.

What is CBAM? 

The Carbon Border Adjustment Mechanism (CBAM) is a piece of EU legislation affecting UK exporters. Starting from 1 October 2023, the EU introduced new rules to ensure that CO2 emissions created in the manufacture of goods imported in the EU are recorded and reported within the EU. 
 
Although reporting requirements for the EU CBAM have been implemented, it won't be until 2026 that businesses will have direct costs under the scheme. Businesses will then have to purchase certificates under the EU Emissions Trading Scheme to cover the imports of such goods - effectively increasing their price and taxing the related emissions.  
 
UK businesses exporting to the EU will be affected first, with the administrative reporting burden starting this year - including the need to appoint an EU based reporting agent if the UK business has no footprint in the EU.

UK CBAM proposals

From 2027, the UK government is seeking to address future carbon leakage including: 

• Mandatory product standards - ie legally enforced maximum embodied emissions for different products sold (or imported for own use) in the UK 
• Growing the market for low carbon products - for example, by labelling schemes that tell the consumer how much carbon is emitted in the manufacture of the goods encouraging the purchase of greener products and through government procurement policies. 
• A key element of the scheme will be to efficiently measure the carbon emissions embodied in products - you have to measure it before you can tax it!

What goods fall within the CBAM regulations?

EU CBAM legislation covers a number of heavy industrial sectors where carbon emissions are already known to be problematically high including: 

Aluminium, iron and steel 

Cement 

Electricity 

Fertilizers and hydrogen. 

The scheme also applies to certain precursors - basic materials that are used as inputs in the production of CBAM goods - and a few downstream products e.g., screws and bolts. It is expected that this list of materials we be expanded over time as the deadline for achieving net zero approaches. 

The 2024 Autumn Budget confirmed the scope of the UK proposals, including the products it will cover. From 1 January 2027, the UK CBAM regulations will cover: 

• Cement  
• Fertiliser 
• Iron and steel 
• Aluminium 
• Hydrogen 

The scope of both 'upstream' and 'downstream' emissions to be included has not yet been decided, so could end up being wider in application than the EU legislation. 

When will UK CBAM regulations start?

The Government confirmed that the Carbon Border Adjustment Mechanism will begin on 1 January 2027. Read the Government’s response to the CBAM consultation.

Download our CBAM flyer

How we can help

CBAM risk assessments

If you think your business could be exposed to the CBAM regulations, we can help you determine:  

• The extent to which your goods are covered by the CBAM’s 
• Your reporting requirements as a supplier to EU customers or a direct importer into the EU 
• What data you are required to collate and report. 

CBAM reporting service

You can outsource the completion of your CBAM quarterly reporting to our expert team. 

CBAM Training

If you need to educate your staff on CBAM regulations, we can provide your staff with sector specific practical training on: 

• What CBAM is and how it will work 
• How to determine whether goods are subject to CBAM 
• Data requirements for reporting for your industry 
• How to prepare and submit your CBAM reports 

To discuss how we can best support your business, please get in touch with Matthew Clark.