In 2023, the UK Government announced it was introducing its own Carbon Border Adjustment Mechanism ('UK CBAM'). After a public consultation period, several key details on how the UK CBAM will work have been confirmed, with further updates on other areas to come at a later date.
UK CBAM will apply to UK imports from 1 January 2027. Unlike the EU's CBAM, a carbon price will be payable on imports of CBAM goods from this date. Further information on affected sectors and reporting obligations is below.
What sectors are in scope?
- Aluminium
- Cement
- Fertiliser
- Hydrogen
- Iron and Steel
Glass and ceramics sectors have been scoped out for now due to production complexities. The complete list of goods by HS code in scope can be found in Annex B of this document.
What information is required to be reported?
- HS code and goods description
- Net mass / weight
- Total emissions embodied
- Date of import
Other information such as country of origin, production methods and carbon taxes already paid will be required.
Who is required to register?
Any party who releases CBAM goods into the free circulation or moves CBAM goods to the UK where there are no customs controls. There is a minimum registration threshold of £50,000 over a rolling 12-month period. The threshold is forward and backwards looking.
The responsibility will typically fall on the importer to register for CBAM reporting. However, the UK Government also announced plans to allow a tax agent to register on behalf of an importing party – a key differential between UK and EU CBAM. This was noted in the introductory public consultation document and no further insights were provided in the Government response document.
What is my CBAM liability?
The CBAM liability is based on the amount of emissions (CO2) per tonne. The total emissions will be calculated using actual emissions or default rates. Actual emissions will comprise of the following:
- Direct emissions (related to the production process)
- Indirect emissions (e.g. production of electricity)
- Emissions embodied in precursor goods
The UK Government confirmed that the CBAM liability will not be calculated differentiating between Scope 1, 2 and 3 goods. The rate will be measured per Co2 per tonne.
Where it is not possible to calculate the actual emissions, default values can be used as an alternative. Default rates will be published on a quarterly basis on a per product basis (either at 4 or 8 HS digit level). The rates will be based on the UK Emissions Trading System (ETS) rates, free allocation of allowances under the UK ETS and the Carbon Price Support rate for the prior period. Further details on this are to be provided at a later point.
It will be possible to offset your CBAM liability against those paid overseas. However, it is important to note that overseas liabilities must be a price or tax paid based on the emissions related to the goods. Any types of non-carbon or fuel tax payments are not allowed to be offset.
Information related to emissions and overseas carbon prices must be verified by an independent person that is accredited by a member of the International Accreditation Forum (IAF).
What are my reporting requirements?
The UK CBAM is being treated like a tax with specific periods for liabilities, filing and payment. First period is 1 January 2027 – 31 December 2027, with the return and payment due 5 months later by 31 May 2028.
From 1 January 2028 returns will be due quarterly with a view to having it as a monthly requirement with filing and payment due one month after the reporting period. Further details on this are likely to be made available post-implementation.
What are the implications for Middle East exporters?
If you export to the UK, from 1 January 2027 you will be required to provide information on product emissions to your customers. This will have significant implications for Middle East exporters, with the biggest obstacles being data gathering and mitigating additional costs.
We would recommend for Middle East exporters who export to the UK to:
- Conduct a detailed assessment of your goods in the effected categories to identify what is in scope of CBAM reporting;
- Understand the data requirements and availability of this information internally;
- Review your supply chain and understand your contracted responsibilities against any third parties (including customs brokers, customers and logistics providers). Review and amend any contracts where necessary to reflect changing responsibilities due to the UK CBAM;
- Develop processes and procedures to ensure CBAM compliance.
Further detail on the UK CBAM and consultation responses can be found here.
Originally published 1 November 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
