Learn how the UK Carbon Border Adjustment Mechanism (UK CBAM) will affect importers from 2027, including carbon pricing, emissions reporting and compliance.
As nations accelerate their efforts to achieve net zero emissions, carbon trading has become an established policy tool for reducing GHG emissions. While these policies encourage domestic industries to invest in cleaner technologies, they can also create an unintended consequence known as carbon leakage where production shifts to nations with less stringent climate policies. This ‘carbon leakage’ undermines the efforts to reduce global emissions.
To address this carbon leakage challenge, the UK Government will introduce the UK Carbon Border Adjustment Mechanism (UK CBAM) from 1 January 2027.
A carbon tariff that will apply to certain carbon-intensive goods imported into the UK from 1 January 2027. The UK CBAM will complement the UK Emissions Trading Scheme (UK ETS) by helping to ensure imported products are subject to a carbon price comparable to that faced by UK manufacturers.
Without a border adjustment mechanism, products manufactured in nations with less stringent climate policies will avoid carbon costs that UK producers must pay under the UK ETS. This creates an unfair competitive advantage for overseas manufacturers and increases the risk of carbon leakage, rather than reducing global GHG emissions.
By applying a carbon price to eligible imports, the UK CBAM will create a level playing field for UK industry while supporting the UK's wider decarbonisation objectives. Unlike the EU CBAM, which requires importers to purchase CBAM certificates, the UK Government has proposed a tax-based mechanism administered by His Majesty’s Revenue & Customs (HMRC), simplifying its integration with existing tax processes.
Implementation is imminent, therefore preparation for the UK CBAM should be well underway. Compliance will depend on more than simply understanding the legislation. It will require businesses to understand their supply chains, obtain reliable emissions data and establish robust reporting processes.
For many importers, one of the biggest challenges will be obtaining product-level emissions data from international suppliers. Businesses that begin engaging with suppliers early will be better placed to understand their potential liability, identify data gaps and establish reporting processes before compliance becomes mandatory on 1 January 2027.
The UK CBAM also has financial implications. Depending on the embodied emissions of imported goods and any overseas carbon price already paid, businesses may become liable for a carbon-linked import charge. Understanding this potential cost will be important for procurement, budgeting and wider business planning.
The UK CBAM will initially apply to imported goods within five carbon-intensive sectors:
However, the mechanism applies to specific commodity codes, rather than every product within these sectors. Organisations should therefore review their imported goods carefully to determine whether they fall within the UK CBAM scope.
Businesses that regularly import raw materials, intermediate products or manufactured goods from these sectors should begin assessing their exposure now. Importers that exceed the UK Government's registration threshold will be required to register for UK CBAM, submit returns to HMRC and maintain records supporting their emissions calculations and any carbon price adjustments claimed.
The amount payable under the UK CBAM is based on three key components:
Where an importer can demonstrate that a recognised carbon price has already been paid during production, this may reduce the final UK CBAM liability, helping to avoid double carbon accounting. The UK Government has proposed that only explicit carbon pricing mechanisms, such as emissions trading schemes (ETS) and carbon taxes, will be eligible for this adjustment.
The UK Government also proposes setting UK CBAM rates quarterly, reflecting the prevailing UK carbon price while accounting for existing carbon leakage mitigation measures within the UK ETS.
Accurate data will form the foundation of UK CBAM compliance. Importers should expect to collect information including:
Where businesses choose to report actual embodied emissions, the UK Government propose that these emissions are calculated using prescribed methodologies and are verified by an independent, third party. If actual data is unavailable, UK Government-published default emissions values may be used during the initial implementation period, although these emissions values may not accurately reflect the emissions associated with individual products.
While the legislation itself is relatively straightforward, UK CBAM implementation may prove more challenging.
Many businesses have yet to identify which imported goods fall within scope, particularly where supply chains involve multiple products or international suppliers. Establishing clear internal ownership can also be problematic, as the UK CBAM crosses procurement, sustainability, finance, customs and compliance business functions.
Obtaining reliable supplier emissions data is expected to be another significant challenge. Many overseas suppliers do not yet calculate product-level embodied emissions or understand the UK's reporting requirements. Building these relationships and establishing consistent data collection processes may take considerable time.
Businesses will also need to understand the financial implications of the UK CBAM, including how potential liabilities could affect procurement decisions and long-term budgeting. Where actual emissions are reported, maintaining appropriate documentation and independently verified data will be essential to support compliance.
The UK CBAM will take effect in January 2027 so preparations should be underway to establish the foundations for compliance. The first reporting deadline will be 31 May 2028 and will cover imports made during the initial accounting period from 1 January to 31 December 2027.
Key actions include:
Taking these steps early can help reduce compliance risks, improve data quality and minimise disruption once reporting obligations begin.
The UK CBAM covers imported aluminium, cement, fertiliser, hydrogen, and iron and steel. Coverage is determined by specified commodity codes, so the exact CN codes are important when assessing whether an import falls within the scheme.
A limited number of goods identified via their relevant commodity code may not be within the scope of UK CBAM. For example, imported scrap or ferrous waste products within the aluminium, iron and steel sector are excluded from UK CBAM.
As explained in this article, preparing for the UK CBAM requires more than gaining an understanding of the regulatory requirements. Your business needs to have confidence in the quality of emissions data, reporting processes and supporting evidence.
TÜV SÜD can support you by providing preliminary UK CBAM verification, GHG quantification and assurance services aligned with recognised international standards. Our experts help businesses strengthen emissions data management, improve supply chain transparency and prepare for evolving carbon reporting requirements, which adds up to a smoother transition towards UK CBAM compliance.
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