UK CBAM: Carbon Border Adjustment Mechanism Explained

Key Takeaways

• What it is: UK CBAM requires importers to pay for the carbon content of certain high-emission goods
• When it starts: Transitional reporting began January 2026, financial obligations start 2027
• Covered goods: Cement, iron & steel, aluminium, fertilisers, electricity, and hydrogen
• Cost impact: Adds £15-85 per tonne of embedded CO₂ equivalent (varies by carbon price)
• Who’s affected: Importers of covered goods from countries without equivalent carbon pricing
• Key requirement: Quarterly CBAM returns and purchase of CBAM certificates

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The UK’s Carbon Border Adjustment Mechanism (CBAM) represents the most significant environmental trade policy shift since Brexit. Launched in parallel with the EU’s CBAM system, it fundamentally changes how UK businesses import carbon-intensive goods.

If you import cement, steel, aluminium, or other covered products, this isn’t just another compliance burden—it’s a major operational and financial consideration that requires immediate attention.

What Is UK CBAM and Why Does It Exist?

CBAM is essentially a carbon tariff. It requires UK importers to pay for the carbon emissions embedded in certain goods imported from countries that don’t have equivalent carbon pricing systems.

The mechanism serves two purposes:

1. Protect UK businesses: Prevents “carbon leakage” where UK companies face unfair competition from imports produced with cheaper, high-carbon energy
2. Global climate action: Incentivises other countries to implement their own carbon pricing or cleaner production methods

Think of it as levelling the playing field. If a UK steel manufacturer pays for carbon emissions through the UK’s carbon pricing systems, importers of foreign steel should face equivalent costs.

How UK CBAM Differs from EU CBAM

Businesses trading with both the UK and EU must understand how the two CBAM regimes interact. While the UK system mirrors many EU CBAM principles, there are crucial differences:

Feature	UK CBAM	EU CBAM
Start date	1 January 2027 (transitional reporting from January 2026)	October 2023 (transitional), 2026 (financial)
Covered sectors	6 sectors (cement, iron & steel, aluminium, fertilisers, electricity, hydrogen)	6 sectors (same)
Indirect emissions	Excluded until 2029 at earliest	Included from 2026
Declaration frequency	Quarterly	Quarterly
Threshold	TBD (de minimis expected)	€150 per shipment
Carbon price reference	UK ETS prices	EU ETS prices
Administration	HMRC through UK CBAM Registry	EU member state authorities

Critical point: Having EU CBAM compliance doesn’t automatically cover UK requirements. You need separate UK CBAM authorisation and certificates. Goods originating outside both the UK and EU — for example, Chinese steel imported into the EU then re-exported to the UK — may face CBAM charges in both jurisdictions, creating potential double charging.

The UK government will seek equivalence agreements to reduce duplication. Until then, assume both regimes apply independently. Collect emissions data satisfying both UK and EU verification requirements.

Which Goods Are Covered?

UK CBAM applies to imports of specific carbon-intensive products:

1. Cement

• CN codes: 2523.10 to 2523.90
• Coverage: All cement clinkers and hydraulic cements
• Key consideration: Includes blended cements with fly ash or slag

2. Iron and Steel

• CN codes: 7201-7207, 7208-7216, 7217-7229
• Coverage: Raw iron, steel products, finished steel goods
• Key consideration: Some downstream products (like machinery containing steel) may be covered

3. Aluminium

• CN codes: 7601-7606, 7607-7616
• Coverage: Unwrought aluminium, aluminium bars, sheets, tubes
• Key consideration: Includes both primary and secondary (recycled) aluminium

4. Fertilisers

• CN codes: Various codes within 2808, 2814, 2834, 3102-3105
• Coverage: Ammonia, nitric acid, nitrogen/phosphorus/potash fertilisers
• Key consideration: Some compound fertilisers may fall under multiple categories

5. Electricity

• CN codes: 2716.00 (electrical energy)
• Coverage: Direct imports of electricity
• Key consideration: Mainly relevant for Northern Ireland imports from Ireland

6. Hydrogen

• CN codes: 2804.10
• Coverage: Pure hydrogen gas
• Key consideration: Growing sector with significant decarbonisation implications

Understanding Carbon Content and Default Values

Each covered good has embedded carbon calculated in tonnes of CO₂ equivalent per tonne of product. You can use:

Default Emission Values

HMRC publishes default carbon intensity values for each covered product and country of origin. These are conservative estimates that tend to overstate emissions.

Examples of default values (per tonne of product):

• Hot-rolled steel coil: 2.19 tonnes CO₂e
• Cement clinker: 0.88 tonnes CO₂e
• Primary aluminium: 16.78 tonnes CO₂e

Actual Emission Values

You can use lower, verified emission values from the producer if you have:

• Verified emissions data from the installation
• Third-party verification certificates
• Proper documentation chain

Calculating Your CBAM Liability

CBAM liability uses a straightforward formula, but obtaining accurate emissions data from suppliers is often challenging.

CBAM calculation formula:

CBAM liability = (Embedded emissions per tonne × Tonnes imported) − Carbon price paid abroad

Worked example:

A UK importer brings in 100 tonnes of steel bars from a country with no carbon price. The producer reports embedded emissions of 2.5 tonnes CO₂ per tonne of steel.

• Embedded emissions: 2.5 tonnes CO₂/tonne × 100 tonnes = 250 tonnes CO₂
• Carbon price paid abroad: £0
• CBAM certificates required: 250 certificates

If the CBAM certificate price is £50 per tonne CO₂, the importer pays £12,500 for this shipment.

For comparison, the EU CBAM certificate price in Q1 2026 was €75.36 per tonne CO₂. UK rates may differ based on the UK carbon market price.

Cost impact example: For 100 tonnes of primary aluminium with default emissions (16.78 tonnes CO₂e per tonne), at a carbon price of £50/tonne CO₂e, the CBAM cost would be £83,900.

Perform the calculation for each shipment and aggregate for quarterly declarations. High-volume importers should consider automated systems to track CBAM liability across multiple suppliers.

Compliance Requirements for Importers

1. CBAM Authorisation

Before importing covered goods, you must:

• Register on the UK CBAM Registry (managed by HMRC)
• Obtain a UK CBAM authorisation number
• Provide financial guarantees if required
• Nominate responsible persons for CBAM compliance

2. Quarterly CBAM Returns

You must submit quarterly returns declaring:

• Quantities of covered goods imported
• Country of origin and production installation details
• Embedded carbon content (default or verified values)
• Any carbon price already paid in the country of origin
• CBAM certificates surrendered

Deadlines: Returns due by the last day of the month following each quarter (31 January, 30 April, 31 July, 31 October).

3. CBAM Certificates

For 2027 onwards, you must:

• Purchase CBAM certificates equivalent to the carbon content of your imports
• Account for any carbon price already paid in the country of origin
• Surrender certificates quarterly through your CBAM return

Certificate pricing: Certificates are priced based on the average weekly auction price of UK ETS allowances.

4. Verification Requirements

From 2027, emissions data must be verified by an accredited verifier. The framework mirrors EU CBAM, requiring independent confirmation of reported emissions. Confirm your suppliers can provide verified data before the first deadline.

Practical Implementation Steps

Phase 1: Assess Your Exposure (Immediate)

1. Audit your imports: Review 2025 import data to identify covered CN codes
2. Quantify volumes: Calculate total tonnage of covered goods by origin country
3. Estimate costs: Use default emission values and current UK ETS prices for budget planning
4. Identify suppliers: Map which production installations supply your covered goods

Phase 2: Establish Compliance Framework (Q2 2026)

1. Register for CBAM authorisation through HMRC’s UK CBAM Registry
2. Develop data collection processes for gathering emission information from suppliers
3. Update supplier contracts to require CBAM-relevant documentation
4. Train your customs/procurement teams on CBAM requirements

Phase 3: Optimise Your Approach (Ongoing)

1. Work with suppliers to obtain verified (lower) emission values rather than defaults
2. Consider supply chain changes to source from countries with carbon pricing systems
3. Evaluate carbon credit strategies where applicable
4. Monitor regulatory updates as the system expands to cover more sectors

Impact on Your Supply Chain Strategy

CBAM is reshaping global trade patterns. Consider these strategic responses:

Supplier Diversification

• Priority sourcing: Countries with robust carbon pricing (EU, UK, Canada) may become more competitive
• Regional shifting: Increased interest in domestic UK production or near-shoring
• Supplier selection: Factor CBAM costs into total landed cost calculations

Carbon Transparency Requirements

• Data demands: Suppliers must provide detailed emission data or accept default (higher) values
• Verification standards: Third-party emission verification becomes a competitive advantage
• Long-term partnerships: Deeper collaboration needed with suppliers on decarbonisation

Commercial Negotiations

• Price adjustments: CBAM costs typically passed through supply chains
• Contract terms: Include CBAM compliance obligations and data provision requirements
• Risk allocation: Agree who bears the cost of emission default values vs verified data

Common Questions and Practical Answers

Q: What if my supplier can’t provide emission data? You’ll use HMRC’s default values, which are typically higher than actual emissions. This makes getting verified data a commercial priority.

Q: How do I handle goods that transit through multiple countries? CBAM applies based on the country of origin (where the covered good was produced), not transit countries.

Q: What if I import from a country with carbon pricing? You can claim credit for carbon prices already paid in the origin country, reducing your UK CBAM obligation.

Q: Are there any exemptions or thresholds? Currently, no de minimis threshold exists for UK CBAM. However, a de minimis threshold is expected (exact figure to be confirmed), which may align with existing customs simplifications. All imports of covered goods are subject to CBAM until a threshold is confirmed.

Q: What happens if I don’t comply? HMRC enforces CBAM using powers granted under the Finance Act 2026. Penalties include:

• Failure to submit declaration: Fixed penalty plus daily penalties for continued non-compliance
• Under-reporting emissions: Penalty based on certificates not surrendered, plus interest
• Providing false information: Civil penalties up to 100% of CBAM liability, with potential criminal prosecution for deliberate fraud
• Failure to surrender certificates: Penalty equal to unpaid CBAM charge plus additional fines

HMRC will take a proportionate approach during initial implementation, focusing on education before enforcement. However, legal obligations apply from day one. Civil penalties typically range from £500-£5,000 per violation for routine breaches.

Q: What are the record-keeping requirements? Retain all CBAM-related records for at least four years: supplier emissions declarations, verification certificates, carbon price evidence, and declarations submitted to HMRC. If you discover an error in a submitted declaration, notify HMRC promptly — voluntary disclosure may reduce penalties. The CBAM service includes mechanisms for correcting previous declarations.

Q: Will CBAM expand to cover more products? Yes, the EU and UK are both reviewing expansion to chemicals, plastics, and other sectors from 2030 onwards.

Integration with Other Trade Measures

CBAM interacts with several existing UK trade mechanisms:

Customs Duties

• CBAM is separate from standard import duties but both apply to covered goods
• Total landed cost includes both standard duty and CBAM charges
• Different preferential duty arrangements don’t affect CBAM obligations

UK Global Tariff (UGT)

• CBAM applies regardless of whether goods enter under preferential or MFN tariff rates
• Trade agreement benefits reduce customs duties but not CBAM charges

Customs Declaration Requirements

• Additional data elements required on customs declarations
• CN code classification becomes even more critical for CBAM coverage determination
• Enhanced record-keeping requirements for CBAM compliance

Preparing for 2027 and Beyond

While 2026 is a transitional reporting-only period, the financial obligations starting in 2027 will be substantial. Early preparation is essential:

Q2 2026: Complete CBAM registration and establish supplier data collection Q3-Q4 2026: Test quarterly reporting processes and refine emission data quality Q1 2027: Begin purchasing and surrendering CBAM certificates for financial compliance

The businesses that treat CBAM as a strategic supply chain consideration—not just a compliance burden—will maintain competitive advantage as carbon costs become a permanent feature of international trade.

Remember, CBAM represents a fundamental shift towards carbon accountability in global commerce. Whether you’re importing steel for construction, cement for infrastructure, or aluminium for manufacturing, understanding and optimising for CBAM is now essential for sustainable UK operations.

Key Resources

• UK CBAM Registry: gov.uk/guidance/uk-carbon-border-adjustment-mechanism
• HMRC CBAM Guidance: Updated quarterly with technical specifications
• UK ETS Auction Results: For current certificate pricing references
• CN Code Classification: Use the UK commodity codes guide for accurate product classification