The UK Carbon Border Adjustment Mechanism (CBAM) - What the new legislation means for businesses

What is it?

The UK Carbon Border Adjustment Mechanism (CBAM) will come into force from 1st January 2027 and will introduce an import tax on certain products/materials deemed carbon intensive, specifically associated with the following five sectors: aluminium, cement, fertiliser, hydrogen, and iron and steel.

The purpose is to address the potential of ‘carbon leakage’ associated with the UK manufacture of products that are subject to UK carbon taxation, and is a similar scheme to the EU CBAM, which became fully active in January 2026.

The principle behind the scheme is to ensure that imported products from these sectors face a comparable tax to UK manufacturers producing the same goods, via an import tariff that will bridge the gap between the carbon tax paid to produce these goods in the UK and the carbon tax paid in the country of production.

How will it work?

The importer of the relevant goods is liable for the reporting and payment of the CBAM levy. They have a responsibility to register with HMRC, collate emissions data, submit a report to HMRC (an annual report for 2027 and quarterly reports from 2028) and pay the CBAM levy.

The levy will be based on the embodied emissions of imported goods. Importers can use either actual emissions data for their imports (which must be independently verified) or use a default emissions factor, to be set by UK Government.

The basic CBAM tax rate will be set by reference to the UK ETS allowance price, taking the mean average UKA (UK Allowance) auction price over the previous quarter - adjusted to reflect the average proportion of sectoral direct emissions covered by a free allowances allocation.

The tax payable can potentially be reduced by the application of a ‘Carbon Price Relief’ (CPR) factor, which would apply to imported goods already subject to a carbon pricing scheme in the country of manufacture (strict criteria will apply in relation to the eligibility of overseas carbon price schemes). The tax payable would be the difference between the CBAM levy rate and the carbon tax already paid on the product prior to import.

Who will be affected?

CBAM will apply across the whole of the UK including Northern Ireland. If you import a sufficient quantity of CBAM goods from outside of the UK (see de-minimis threshold below) then you are potentially liable to register as an importer of CBAM goods.

The importer will be whoever or on whose behalf, a customs declaration is made (or on whose behalf the CBAM good is imported if there is no requirement to make a customs declaration). This also applies if you appoint a third party to transport goods, but customs obligations are undertaken by your organisation.

However, if a third party are appointed to handle your imports, and that third party completes the customs declaration, they will be considered the importer for CBAM.

What should I do now?

If you think that the UK CBAM will impact on your business, we recommend taking the following steps:

1. Identify which of your imported goods are potentially in scope of CBAM and your import value (a de-minimis threshold annual imported value of £50,000 will be applied per good). These are defined by commodity codes. The full list can be found on the UK Government website.
2. Start to identify the available emissions data of these products through value chain mapping and engagement with your key suppliers.
3. Identify any CBAM products in the supply chain that are already subject to a carbon pricing scheme in their country of manufacture, and therefore potentially eligible for Carbon Price Relief (CPR).

What are the next steps?

The legislation is currently at the ‘draft secondary legislation’ phase, which should be followed by the introduction of the legislation and scheme at the start of 2027. A full guidance document is planned to be published by the UK Government ‘from Summer 2026’.

The liable company (importer) will be required to register with HMRC and submit their initial CBAM return (based on 2027 imports) by 31st May 2028, with the payment due five months after that date.

For many businesses, CBAM will introduce new compliance requirements, including supplier engagement, emissions data collection, reporting processes and potential financial liabilities. Organisations that import affected goods should begin assessing their exposure well before the January 2027 implementation date.

Where can I find out more?

Further information can be found via the links below:

• UK Government CBAM information page
• Draft Regulations and Consultation documents

Note: The UK CBAM framework continues to develop and certain implementation details may change before the mechanism comes into force. Businesses should refer to the latest UK Government guidance when assessing compliance obligations.