CBAM Update: What we know so far about the UK and EU
Carbon Border Adjustment Mechanisms (CBAM) have moved quickly from policy concept to something much more tangible. For businesses trading internationally, particularly in carbon-intensive sectors, there will need to be a plan in place to work effectively within regulation.
At its core, CBAM is designed to address carbon leakage. This is where production shifts to countries with weaker climate policies. By applying a carbon cost to certain imported goods, governments aim to level the playing field between domestic producers who invest in reducing carbon or are taxed on their carbon output and overseas competitors who may not.
Both the EU and the UK are developing CBAM policies. They share similar goals, but are at different stages. The UK’s latest consultation gives a clearer view of how its approach may work in practice.
EU CBAM: Already in Motion
The EU CBAM entered a transitional phase in October 2023, which means businesses importing certain goods into the EU are already required to report the emissions embedded in those products.
For now, it is reporting only, with no financial adjustment yet. Importers will eventually need to purchase CBAM certificates linked to the EU Emissions Trading System (ETS), effectively paying a carbon price on imports.
Sectors in scope include iron and steel, cement, aluminium, fertilisers, and hydrogen.
Even at this early stage, the EU CBAM is already having an impact, pushing businesses to increase understanding and reporting of product-level emissions.
UK CBAM: Confirmed, But Still Taking Shape
The UK has confirmed it will introduce its own CBAM from 1st January 2027. Like the EU version, it’s designed to complement the UK ETS and address carbon leakage. The initial sector scope is the same, showing clear alignment of intent and coverage.
But unlike the EU, the UK is still working through the details regarding implementation. That’s where the latest consultation becomes important.
The Latest Consultation: Moving into the Detail
The UK Government recently launched a technical consultation on CBAM emissions calculation and verification, aiming to confirm how UK CBAM will work in practice once introduced.
Three key areas included within consultation were:
1. Emissions Calculation
CBAM is based on embedded emissions, meaning the emissions associated with producing a good.
The consultation starts to define how these emissions should be calculated. This is one of the most complex elements of the system.
Key issues include system boundaries, the use of default values versus actual data, and consistency across jurisdictions. The direction is towards standardised and comparable methodologies, while still being workable for businesses.
2. Verification Requirements
The UK is signalling that emissions data will require independent verification rather than self-declaration.
This aligns with broader carbon reporting trends where data must be auditable and reliable. For businesses, this means emissions calculations will need to meet assurance standards, not just internal reporting requirements.
3. Administration and Compliance
The UK CBAM will sit within the tax system, with HMRC responsible for administration.
The consultation sets out expectations for reporting, record-keeping, and compliance. While details are still being finalised, the framework points to a formal and enforceable regime.
Similar Aims, Different Positions
The UK and EU CBAMs are built around the same idea – both link to carbon pricing systems, focus on similar sectors, and aim to reduce carbon leakage. But there are still differences to consider.
The EU is already operating in a reporting phase, whereas the UK is earlier in its development but has more flexibility before launch.
Alignment is an important question. If approaches to calculation or verification differ, businesses working across both markets may face two separate systems. This possibility should be a consideration for many organisations.
What Should Businesses Be Thinking About?
Although the UK CBAM does not start until 2027, preparation should begin earlier.
Data is a key issue. Do you have access to reliable product-level emissions data?
Supply chains are another factor. Can suppliers provide the information required?
Verification also matters. Are your processes strong enough to support independent checks?
Finally, consider exposure. Are you affected by EU CBAM, UK CBAM, or both?
For many organisations, the challenge is not just compliance. It is building the systems needed to gather and manage the right data.
At the same time, the timing of these detailed consultations is raising questions across industry. With implementation approaching, there is limited time for testing, system development, and gaining clarity on cost exposure. This creates an additional layer of uncertainty for businesses that need to plan early, particularly those operating across both UK and EU regimes.
