Understanding CBAM

-What it Means for UK Businesses & Global Trade

The UK is preparing to introduce its own Carbon Border Adjustment Mechanism (CBAM) a year from now on the 1st January 2027, marking one of the most significant shifts in UK climate‑trade policy since Brexit. The goal is simple: ensure that imported carbon‑intensive goods face a carbon price comparable to those produced domestically under the UK Emissions Trading Scheme (UK ETS) GOV.UK.

This move mirrors the EU’s CBAM but is tailored to the UK’s post‑Brexit regulatory landscape.

What is the UK CBAM?

The UK CBAM is a carbon pricing mechanism applied to certain imported goods with high embedded emissions. Importers will pay a levy based on the difference between the carbon price paid in the country of origin and the UK carbon price.

The UK government states that the policy aims to prevent carbon leakage: the relocation of production to countries with weaker climate rules GOV.UK.

When Will It Start?

The UK CBAM will come into force on 1st January 2027 GOV.UK.

Draft legislation and policy design consultations were published in 2024 and 2025, giving businesses time to prepare GOV.UK hsfkramer.com.

Which Sectors Will Be Covered?

The UK CBAM will apply to a targeted set of carbon‑intensive sectors, similar to the EU’s list:

• Iron and steel
• Aluminium
• Cement
• Fertilisers
• Hydrogen
• Glass, ceramics, and some chemicals(additional sectors considered in UK consultation)

These sectors were selected because they face the highest risk of carbon leakage and have measurable embedded emissions GOV.UK Linklaters – Sustainable Futures.

For those unsure if the imported product will be affected by CBAM, you can check on the list of Combined Nomenclature (CN) codes (Commodity codes within scope of CBAM). 

How the UK CBAM Works

Here’s a simple breakdown of the mechanism:

Component	UK Approach
Scope of goods	Imports of carbon‑intensive goods in steel, aluminium, cement, fertilisers, hydrogen, and some ceramics GOV.UK
Carbon price calculation	Based on the UK ETS price minus any carbon price already paid abroad KPMG
Reporting requirements	Importers must report embedded emissions and pay the levy quarterly GOV.UK
Start date	1 January 2027 GOV.UK

Sources: GOV.UK KPMG

Overview of the liability calculation:

Why the UK Is Introducing CBAM

The UK government frames CBAM as a tool to:

• Protect domestic industries from unfair competition
• Support decarbonisation across heavy industry
• Align with EU policy to reduce trade friction
• Maintain competitiveness for UK manufacturers

The UK also wants to avoid a situation where EU’s applies to UK exports while the UK has no reciprocal mechanism, a risk highlighted in the 2024–2025 consultations Linklaters – Sustainable Futures.

How the UK CBAM Differs from the EU‘s

Although similar, the UK version has some key differences:

Area	EU CBAM	UK CBAM
Start date	2026	2027
Sectors covered	Steel, aluminium, cement, fertilisers, electricity, hydrogen	Similar, but electricity excluded; ceramics and glass considered
Carbon price basis	EU ETS	UK ETS
Reporting frequency	Annual	Quarterly
Current threshold for applicability	50+ tonnes of CBAM goods	£50,000+ of CBAM goods over 12 months

Sources: GOV.UK Linklaters – Sustainable Futures

What this means for UK importers

Businesses importing goods into the UK will need to:

• Measure embedded emissions using approved methodologies
• Collect data from overseas suppliers
• Understand carbon pricing in exporting countries
• Prepare for quarterly reporting and payments
• Review supply chains to identify high‑risk imports

KPMG notes that businesses have “just twelve months to prepare” as of late 2025 KPMG.

Impact on UK Trade Partners

The UK CBAM will particularly affect exporters to the UK from:

• China
• India
• Turkey
• Middle Eastern steel and aluminium producers

Countries with low or no carbon pricing will see higher levies applied to their exports.

Risks, Challenges & Considerations

• Administrative burden: Importers must gather complex emissions data.
• Supplier readiness: Many non‑UK suppliers lack emissions reporting systems.
• Trade tensions: Some countries may challenge CBAM as protectionist.
• Cost increases: High‑carbon imports will become more expensive.
• Compliance risks: Incorrect reporting may lead to penalties.

Sources: GOV.UK KPMG Linklaters – Sustainable Futures

Key impacts of EU CBAM on UK exporters

1. New data and reporting expectations

EU CBAM doesn’t regulate UK companies directly, but it regulates their EU customers, who in turn need detailed emissions data from UK suppliers. UK exporters must now be able to provide:

• Accurate embedded emissions data for their products
• Evidence of any carbon price already paid (e.g. under the UK ETS)
• Verified methodologies for calculating emissions

If UK firms cannot supply this information, EU customers may default to “fallback values” that assume higher emissions, making those UK products look more carbon‑intensive and therefore more expensive under CBAM.

2. Competitive pressure based on carbon intensity

CBAM effectively turns carbon performance into a price factor. UK exporters with lower‑carbon production will be more attractive to EU buyers because their products will carry a lower CBAM cost. Those with higher emissions risk:

• Losing tenders to cleaner competitors (including within the EU)
• Being pushed to discount prices to offset CBAM costs
• Facing pressure to decarbonise faster than planned

The British Chambers of Commerce emphasises that CBAM is not just a compliance issue but a strategic competitiveness issue for UK exporters.

3. Administrative and compliance burden

Even though the legal obligation to report sits with the EU importer, UK businesses will feel the administrative load:

• Responding to detailed CBAM questionnaires from EU customers
• Aligning internal data systems to track product‑level emissions
• Working with consultants or verifiers to ensure data quality

Professional bodies warn that UK businesses “must prepare for the changes” and understand what data their EU customers will require to remain competitive.

Final Thoughts

The UK CBAM is more than a climate policy, it’s a trade‑shaping mechanism that will influence supply chains, pricing, and industrial strategy for years to come. For UK businesses, early preparation is essential. For global exporters, the message is clear: decarbonise or lose competitiveness.