The UK Carbon Border Adjustment Mechanism (CBAM) is a new tax due to come into effect on 1 January 2027. Its primary purpose is to prevent carbon leakage, which occurs when businesses move production overseas to countries with less stringent climate policies or lower carbon costs. By applying a comparable carbon price to certain imported goods, the mechanism aims to protect UK manufacturers and ensure that domestic efforts to reduce emissions are not undermined by imports.
Initially, UK CBAM will cover specified goods from five carbon-intensive sectors: aluminium, cement, fertiliser, hydrogen, and iron and steel. Not every product within these sectors will be affected; the precise scope is determined by individual commodity codes. The mechanism will apply across the UK, including Northern Ireland.
The tax will be calculated using the emissions embodied in imported goods and rates linked to the carbon costs faced by UK producers under the UK Emissions Trading Scheme (UK ETS), adjusted to account for free allowances and other relevant support. Where qualifying carbon prices have already been paid overseas, relief may be available to avoid duplicating carbon costs.
Businesses importing £50,000 or more of specified CBAM goods over a 12-month period will generally need to register and comply with relevant requirements. Importers must maintain records of goods, weights and emissions information, and submit returns and payments in accordance with HMRC rules. The first accounting period will cover the 2027 calendar year, with the first return and payment due by 31 May 2028.
Although importers will face the most direct obligations, manufacturers and businesses using affected materials may also experience higher input costs or supply-chain changes. Companies should therefore review commodity codes, assess exposure, engage suppliers to obtain emissions data and prepare for compliance. Overall, UK CBAM seeks to support fair competition, encourage industrial decarbonisation and reduce the risk of emissions being displaced abroad.
The team here at The Clean Tech Business Group will be on-hand and fully trained in supporting businesses navigate the new requirements.