The European Union's Carbon Border Adjustment Mechanism (CBAM) is a tax on “imported carbon” that affects exporters to the EU, including those in the UK.

Imported carbon covers greenhouse gas emissions when goods and services are manufactured and transported for consumption in one country but are produced in another country. The CBAM came into effect in a transitional phase on 1 October 2023.

The CBAM applies to goods and selected precursors whose production is carbon intensive and at most significant risk of carbon leakage products. It is expected to be fully in place by 2026. The EU has identified the following sectors as initially within scope during the CBAM’s transitional phase:

• iron and steel

• aluminium

• cement

• fertilisers

• electricity

• hydrogen (1)

UK businesses exporting products or precursors to the EU in these sectors should review EU guidance to identify whether companies they export to are covered by the CBAM.

A UK company’s EU customers will need to report greenhouse gas emissions on products they import that are in scope of the EU CBAM on a quarterly basis. The EU importer - or “reporting declarant” - must provide a quarterly CBAM report to the European Commission (EC) via the CBAM Transitional Registry.

UK exporters may need to provide information to help importers calculate the embedded emissions of the products in scope and it might be beneficial for exporters to discuss with importing customers what data they need to meet obligations.

Importers might also need carbon emissions data on products that may serve as “precursor” for their CBAM goods, which are then exported to EU countries. UK businesses that sell products to traders who resell them to EU customers, may also need to provide carbon data. Information on relevant precursors can be found in Annex II (Part 3) of the Commission Implementing Regulation (EU) 2023/1773.

The regulations also set additional qualifying parameters for EU importers. For example, for cements imported, the total clinker content needs to be reported; for mixed fertilisers the contents of the different forms of nitrogen. UK exporters may be required to identify monitoring parameters and methodologies for products and may also be asked to collect information on any carbon price due or paid. (2)

There will be no financial adjustment for the embedded emissions during the transitional phase but EU importers, could face financial penalties for failing to submit required quarterly CBAM reports, ranging from 10-50 Euros per tonne of unreported emissions. The exact amount would depend on the severity and duration of the failure. (3)

UK exporters should be aware that from 1 January 2026, EU importers will have to bear a “CBAM obligation” certificates, purchased at the average price of EU Emissions Trading System allowances, for every CBAM good imported into the EU. There will be a phase-in with increasing coverage of embedded emissions from 2026 with full embedded emissions covered from 2034.

The CBAM will directly affect all producers of covered products and SaveMoneyCutCarbon’s advice is that companies with less carbon in their production will be favoured, as will those that already pay a carbon tax. 

Further information about reporting requirements during the transitional period is available on the EC website and exporters are encouraged to review this guidance for the latest information.

The EC has also published a list of National Competent Authorities (NCAs) of the 27 EU Member States and exporters experiencing issues in specific jurisdictions or export markets might need to seek guidance and additional support through these.

UK CBAM

Looking ahead, the UK is planning to introduce an import carbon pricing mechanism by 2027 to support industrial decarbonisation to meet net zero, addressing the risk of carbon leakage. Carbon pricing through the UK Emissions Trading Scheme (UK ETS) can currently lead to leakage in the movement of products from one country to another that have different levels of decarbonisation effort. (4)

The UK government advises that carbon leakage can undermine efforts to reduce global emissions and curtail private investment in decarbonisation, affecting progress on limiting global warming to 1.5°C. (5)

The UK Carbon Border Adjustment Mechanism (UK CBAM) will place responsibility directly with the importer of products within scope, on the basis of emissions embodied in goods. The system will not involve the purchase or trading of emissions certificates.

Liability would depend on the “greenhouse gas emissions intensity” of imported goods and the gap between the carbon price applied in the country of origin and the carbon price that would have been applied had the goods been produced in the UK. The UK CBAM will place a carbon price on industrial goods imported to the UK from aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors. (6)

Bibliography

1  ‘Summary of European Commission guidance on the EU CBAM for UK exporters’ (Accessed December 2024) https://www.gov.uk/government/publications/summary-of-european-commission-guidance-on-the-eu-cbam-for-uk-exporters/

2 ‘Summary of European Commission guidance on the EU CBAM for UK exporters’ (Accessed December 2024) https://www.gov.uk/government/publications/summary-of-european-commission-guidance-on-the-eu-cbam-for-uk-exporters/

3 ‘Summary of European Commission guidance on the EU CBAM for UK exporters’ (Accessed December 2024) https://www.gov.uk/government/publications/summary-of-european-commission-guidance-on-the-eu-cbam-for-uk-exporters/

4 ‘New UK levy to level carbon pricing’ (Accessed December 2024) https://www.gov.uk/government/news/new-uk-levy-to-level-carbon-pricing

5 ‘New UK levy to level carbon pricing’ (Accessed December 2024) https://www.gov.uk/government/news/new-uk-levy-to-level-carbon-pricing

6 ‘New UK levy to level carbon pricing’ (Accessed December 2024) https://www.gov.uk/government/news/new-uk-levy-to-level-carbon-pricing