Takeaways
- Unlike the EU CBAM, the UK Carbon Border Adjustment Mechanism (CBAM) will apply a carbon levy to imports from high-emission sectors, including ceramics and glass, starting in 2027.
- Importers must report both direct and indirect emissions for covered goods, promoting broader carbon accountability.
- Unlike the EU's certificate-based model, the UK CBAM uses a quarterly levy based on the UK ETS price, adjusted by sector.
- Only explicit foreign carbon pricing is credited under the UK system, excluding indirect subsidies or incentives.
- Businesses importing over £50,000 worth of CBAM goods annually must register and comply with reporting and levy requirements.
Summary
The UK’s Carbon Border Adjustment Mechanism (CBAM), set for implementation in 2027, aims to prevent carbon leakage and promote fair competition by applying a carbon levy on certain imported goods. These include aluminium, cement, fertilisers, hydrogen, iron, steel, and uniquely, ceramics and glass. Imports from these sectors will face a carbon cost equivalent to what would apply under the UK’s Emissions Trading Scheme (ETS) if the goods were produced domestically.
The CBAM mandates that importers report both direct (Scope 1) and indirect (Scope 2) emissions. A quarterly levy, rather than a certificate system as used in the EU CBAM, will be calculated based on prevailing UK ETS carbon prices and adjusted for sector-specific conditions. If a valid carbon price has already been paid in the country of origin—such as through a tax or emissions trading—this amount will be deducted. Indirect mechanisms like energy subsidies will not be credited.
The UK CBAM features a compliance threshold of £50,000 in annual imports, significantly higher than the EU’s €150 threshold. Importers must register, submit quarterly emissions data, and maintain documentation to support compliance. The UK system does not include electricity imports, a key difference from the EU model, which also operates on a faster implementation timeline with a transitional phase ending in 2026.
The mechanism supports the UK’s net-zero 2050 goals and aims to encourage international producers to decarbonise while protecting domestic industries. Revenue from CBAM will be directed toward climate and green technology investments. Businesses are encouraged to begin emissions tracking and adjust procurement strategies in anticipation of this regulatory shift, as broader sustainability reporting requirements, like those under the Corporate Sustainability Reporting Directive (CSRD), become increasingly stringent.
