A Carbon Border Adjustment Mechanism (CBAM) is a carbon pricing tool that adds a levy on imports based on the carbon emissions generated during their production, ensuring a level playing field for domestic and international industries and preventing “carbon leakage”. The EU and the UK are both implementing CBAMs, with the EU’s starting its definitive phase in January 2026 and the UK’s set to launch in January 2027.
The Purpose of CBAMs
- Prevent Carbon Leakage:
A CBAM stops companies from moving their carbon-intensive production out of a region with strict climate policies (like the EU or UK) to countries with weaker ones.
- Level the Playing Field:
It ensures that goods imported from countries with less stringent environmental regulations face a comparable carbon cost to those produced domestically.
- Incentivise Cleaner Production:
A CBAM encourages international producers to reduce their carbon emissions to avoid the import charge, promoting cleaner industrial practices globally.
What does this mean for UK manufacturers or distributors?
If you are a UK manufacturer or distributor exporting non-EU goods into the EU, then the EU Carbon Border Adjustment Mechanism (CBAM) already applies to your operations. The transition phase runs through 2025, but from 2026, full reporting and carbon charges begin. To reduce risk and remain competitive, you must start preparing now.
Here’s our step-by-step guide to compliance.
- Map Your Products to CBAM Scope
- Identify if your exports (or upstream components) fall under CBAM categories such as iron and steel, aluminium, cement, fertilisers, or hydrogen.
- Match your HS (tariff) codes against the EU CBAM Annex and implementation rules.
- Consider emissions “embedded” in upstream raw and manufactured materials across your supply chain.
- Collect and Measure Emissions Data
- Compile direct (Scope 1) and indirect (Scope 2) emissions data from your production.
- Where necessary, use default values or industry benchmarks—acceptable during transition but less precise.
- Ensure your data is verifiable and auditable.
- Ensure Traceability of Carbon Costs
- Record any carbon pricing or emissions trading costs already paid domestically or in source countries.
- Engage with EU Importers and Customers
- Communicate early with EU customers about their CBAM obligations and the emissions data they require from you.
- Update contracts to allow price adjustments for CBAM-related costs.
- Coordinate with upstream suppliers to obtain necessary emissions data.
- Review Carbon Footprint and Decarbonisation Strategy
- Since CBAM increases costs for high-emission goods, lowering your carbon footprint is essential for competitiveness.
- Invest in renewable energy, low-carbon technologies, and process improvements.
- Model different ETS (Emissions Trading System) price scenarios to estimate potential CBAM cost exposure.
- Monitor Regulatory Developments
- CBAM rules continue to evolve—track updates from the EU Commission on exemptions, thresholds, and reporting formats.
- The UK and EU are coordinating on policy alignment, so expect adjustments.
- Be ready to adapt data systems and reporting methods as new requirements emerge.
- Strengthen Legal and Compliance Readiness
- Consult carbon, legal, and tax specialists to align operations, reporting, and contracts with CBAM obligations.
- Evaluate whether your ERP and emissions accounting systems can handle accurate, auditable data.
- Even if your export volumes fall below de minimis thresholds (e.g. <50 tonnes), reporting is still required—importers will depend on your data.
- HOWEVER – even if the importer IS below these de-minimis thresholds, the CBAM goods still need to be reported in the same way, so the data from you is still needed…..
Act Now
To remain competitive and compliant, UK exporters must prepare to measure, report, and communicate emissions data to EU partners.
The Clean Tech Business Group can help assess your CBAM exposure, manage compliance, and guide you through the evolving regulatory landscape.