What is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is a UK tax policy meant to ensure that imports of carbon-intensive goods are subject to a carbon price, matching the burden faced by UK producers under the UK Emissions Trading Scheme (UK ETS). CBAM becomes effective from 1 January 2027. (gov.uk)
Which Goods and Sectors Are Affected
CBAM will apply to imported goods in the following sectors:
- Aluminium
- Cement
- Fertilisers
- Hydrogen
- Iron and Steel (gov.uk)
Note: Some imports like scrap products within aluminium and iron & steel may be excluded depending on their commodity codes. (gov.uk)
Key Dates & Thresholds
| Phase | Effective from | What changes |
|---|---|---|
| CBAM primary legislation in place | Finance Act 2026 | Legal basis for CBAM created (gov.uk) |
| CBAM in operation | 1 January 2027 | Importers must register, submit returns, pay CBAM (gov.uk) |
| Indirect emissions inclusion | From 2029 at earliest | Offset by EII compensation scheme currently; design under review (assets.publishing.service.gov.uk) |
Minimum registration threshold is £50,000 of qualifying CBAM goods imported over past or expected 30 days or past 12 months. (gov.uk)
Obligations for Importers
- Register with HMRC if threshold is met (backward- or forward-looking test) (gov.uk)
- Keep records of goods imported, emissions embodied, supporting data or use default emissions values if data unavailable (gov.uk)
- Submit returns & payments annually at first (Jan–Dec 2027) then quarterly from 2028 with deadlines following the end of each period (e.g. May for the first after Jan–Dec) (gov.uk)
Practical Example
Suppose SteelCo Ltd imports steel from abroad:
- Annual UK imports of steel are worth £200,000 and fall in the CBAM goods defined list.
- Threshold exceeded, so from 1 January 2027 they must register.
- They gather embodied emissions data, or use default values if unable to verify.
- After the calendar year ends, by 31 May 2028 they submit first CBAM return and pay tax accordingly.
- If the product uses indirect emissions (like in electricity consumed in manufacturing), those won’t be taxed until 2029 or later.
How To Prepare Now
- Catalogue your imported goods and see if they fall under sector/product codes listed for CBAM.
- Assess emissions data availability: actual vs default values. If using default, watch for sector-specific defaults published ahead of 2027. (gov.uk)
- Estimate financial impact: using illustrative CBAM rates once published (usually quarterly from 2027), factor into cost of goods sold.
- Upgrade record-keeping systems so you can track inputs, emissions data, consignment details.
- Include CBAM in budgeting: not just compliance cost, but payments and potential cash-flow implications from deferred returns, especially in first year.
Strategic Implications & Opportunities
- Supply chain shifts: sourcing from jurisdictions with lower carbon emissions—or from domestic suppliers—may result in savings.
- Negotiation leverage: use CBAM obligations as a reason to ask overseas suppliers for emissions data or cleaner production methods.
- Public image & sustainability branding: being CBAM-ready can enhance green credentials.
Summary
CBAM represents a transformational tax obligation for UK importers of carbon-intensive goods. With primary legislation passed (Finance Act 2026), and draft secondary legislation under consultation as of April 2026, the system officially starts 1 January 2027. Proper planning now—cataloguing imports, emissions tracking, software preparation—can help businesses avoid surprises and integrate into their strategic and financial planning.
Category: Compliance