Overview of CBAM
The Carbon Border Adjustment Mechanism (CBAM) will take effect 1 January 2027, introduced via the Finance Act 2025-26. (gov.uk) The policy ensures that UK importers of certain carbon-intensive goods face a carbon price comparable to domestic producers. Very relevant to sectors like aluminium, cement, fertiliser, hydrogen, and iron & steel. (gov.uk)
Who Will Be in Scope
- Businesses that import £50,000 or more per year of specified goods from those sectors. (gov.uk)
- Also, downstream producers relying on inputs from these sectors (e.g. using fertiliser, iron, steel imported) may have indirect impact.
- Overseas producers who export into the UK may be required to provide emissions data or forfeit certain benefits.
Key Requirements and Features
- Importers must register and submit emissions data, keep records, and account for CBAM duties. (gov.uk)
- The CBAM rate will be based on costs seen under the UK ETS, adjusted for free allowances and other policy mechanisms. (gov.uk)
- Indirect emissions (from upstream supply chains) are not in scope on introduction, with some possibility for later inclusion. (gov.uk)
Actionable Steps for Businesses
- Assess exposure: Calculate annual imports of goods from the impacted sectors. Determine whether you surpass the £50,000 threshold.
- Track emissions data: If you import goods from these sectors, collect data on embodied carbon, country of origin emissions, and UK ETS pricing/freight emissions.
- Register with HMRC: When registration opens, ensure compliance with submission timelines under new secondary legislation. Failures may lead to penalties.
- Review supply chain contracts: Contracts may need including clauses that share emissions data from overseas suppliers, or that pass through CBAM costs.
- Budget for CBAM Duties: Since costs will apply to imports from 2027, plan your pricing, margins, and cost structure accordingly.
Examples
| Company | Sector | Impact | Possible Strategy |
|---|---|---|---|
| A UK fertiliser importer bringing in £100,000/year of nitrogen fertiliser | Fertiliser sector | In scope; must register, report emissions, pay the duty | Change supply routes, purchase from lower-carbon sources, increase margin to pass cost to buyer |
| Steel user manufacturing machinery | Steel inputs from overseas | Indirect exposure (if steels are affected) | Seek suppliers with robust emissions reporting, adjust BOMs accordingly |
Implications for Global and Regulatory Strategy
- Raises costs of high-carbon imports thereby incentivising lower carbon production overseas.
- May lead to trade negotiations disputes; ensure compliance documentation is robust.
- Potentially affects pricing competitiveness — exporters from low-carbon jurisdictions may gain advantage.
Summary
CBAM represents one of the most significant trade & climate tax reforms entering UK law in recent years. For any business importing carbon-intensive goods (especially fertiliser, steel, cement, hydrogen), begin planning now to ensure compliance, optimize your supply chain, and manage costs. The time to act is already—register your systems, adjust contracts, and gather emissions data before 1 January 2027.