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UK CBAM: What does it mean?

The UK government announced that it will introduce a carbon border adjustment mechanism (CBAM) by 2027.


It will establish a carbon tax on imported goods targeted at a series of key emissions-intensive industries, with the purpose of:

  • Equalising the carbon price paid by UK producers with those outside the UK,

  • Avoiding “carbon leakage” or the shifting of production of carbon-intensive goods to jurisdictions with less stringent emissions reduction policies.


Carbon leakage is the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation. Carbon leakage is a problem because it can undermine efforts to reduce global emissions and curtail private investment in decarbonisation – compromising efforts to limit global warming to 1.5°C.


Which sectors will UK CBAM apply to?


The CBAM will initially apply a carbon price to imported goods from sectors including aluminium, cement, ceramics, fertilisers, glass, hydrogen, iron and steel.


The liability applied by the CBAM will depend on:

  • The greenhouse gas (GHG) emissions intensity of the imported good,

  • The gap between the carbon price applied in the country of origin (if any),

  • The carbon price that would have been applied had the good been produced in the UK.


CBAM liability will lie directly with the importer for goods which are within scope of the UK CBAM. This system will not involve the purchase or trading of emissions certificates.


Further detail, including the precise list of products in scope, will be the subject of consultation in 2024.

But in a nutshell, the UK CBAM means that emissions tracking across complex supply chains will become more important than ever. And high-quality product carbon footprints will be increasingly needed by businesses to remain compliant.

Industrial mining

What is the UK CBAM roll out plan?


In a statement announcing its plans to roll out the CBAM, the UK Treasury said:


“Decarbonising UK industry forms an important part of delivering the energy transformation needed to achieve net zero. But these efforts will not succeed if decarbonisation in the UK simply leads to higher emissions abroad.”


The new carbon tax follows a review by the UK government launched earlier this year on a range of potential domestic carbon leakage mitigation measures. The consultation ‘Addressing carbon leakage risk to support decarbonisation’ ran from 30 March 2023 to 22 June 2023, and found 85% of respondents said that carbon leakage is a current or future risk to their decarbonisation efforts.


Further details on the design and delivery of a UK CBAM will be subject to consultation in 2024. The government will engage with trade partners, including developing countries, and affected businesses and organisations, to minimise the impact on trade and the necessary compliance steps.

Alongside a CBAM, the government is also announcing its intention to work with industry to establish voluntary product standards that businesses could choose to adopt to help promote their low carbon products to customers; and to develop a framework which measures the carbon content of goods, that could support other decarbonisation policies in future.


How does UK CBAM link to the UK ETS?


One of the key tools currently used by the UK to decarbonise industry is the country’s Emissions Trading Scheme (UK ETS). Launched in 2021 to replace the UK’s participation in the EU’s Emissions Trading System, the UK ETS sets a limit on GHG emissions for key GHG intensive sectors.


These GHG limits decrease over time to motivate companies to reduce emissions in line with sector climate goals. Companies obtain allowances for every tonne of emissions they produce each year, and those that are successful in reducing emissions below the cap limit are able to sell emissions allowances on the secondary market to other industry participants.


The UK CBAM will work alongside the UK ETS to mitigate the risk of carbon leakage. The ETS Authority is consulting how to better target free allocations of carbon allowances for industries most at risk of carbon leakage, under the ETS. The Authority will also review whether free allocation should be adjusted to reflect any changes to carbon leakage risk for given sectors. 

It is also setting out plans to ensure the ETS market continues to offer an effective financial incentive that drives its participants to decarbonise, following a call for evidence last year, with industries being asked for their view a range of potential measures – including on the design of a new Supply Adjustment Mechanism.


In an attempt to halt carbon leakage, the EU recently adopted a CBAM to equalise carbon prices on imports with its own ETS system. While carbon pricing under EU CBAM will commence on January 1, 2026, a transitional phase is set until the end of 2025, during which only reporting obligations will be enforced.



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