Ahead of the 1 January 2027 entry into force of the UK’s Carbon Border Adjustment Mechanism (“CBAM“) regime, on 13 July 2026, HM Revenue & Customs (“HMRC“) laid secondary legislation before Parliament and published a package of supporting guidance (please see here).
CBAM forms part of the UK government’s wider strategy to tackle carbon leakage and will impose a carbon price on emissions that are attributable to the production of certain types of goods (“embodied emissions“). CBAM aims to level the playing field and ensure that imported goods are subject to a carbon price that is comparable to that incurred by manufacturers based in the UK.
The UK’s CBAM regime will be broadly consistent with the EU regime (with the exception of treatment of electricity); in scope products will be aluminium goods, cement, fertilisers, hydrogen, and iron and steel products and the person liable to CBAM will be the importer of the CBAM good(s) (or the person on whose behalf the CBAM goods are imported)
CBAM will not be charged on the embodied emissions of a CBAM good in circumstances including where:
- the importer is not required to register for CBAM,
- the goods originate in the UK,
- the import qualifies for returned goods relief, or
- certain equivalent reliefs available on the re-importation of goods into the UK.
HMRC’s guidance provides welcome guidance on how businesses can ensure compliance under the new regime, with key takeaways including detail on registration and record keeping requirements, as well as how to calculate the CBAM rate, possible relief and reimbursement arrangements.
Registration requirements
Importers will be required to register for CBAM where the value of the CBAM goods imported into the UK meets or exceeds the £50,000 registration threshold. This threshold may be met either because:
- Forward looking test: the business expects to import CBAM goods at a value of £50,000 or more within the next 30 days; or
- Backward looking test: On the first day of the month, a person must assess whether the aggregate value of the import of CBAM goods has reached or exceeds £50,000 over the preceding 12-month period.
The registration thresholds will apply from 1 January 2027 and registration for CBAM will open by 1 January 2028. If an importer satisfies both the forward and backward looking tests, they must treat their obligations as arising on the earlier date on which they became liable to register.
Record-keeping requirements
Importers of CBAM goods will be required to maintain records relating to their imports from 1 January 2027 for six years, including in relation to any goods they consider exempt from the regime. These records may include import declarations and other customs documentation relating to the imported goods, which may be provided by manufacturers or suppliers. Those liable under CBAM obligations will also need to maintain specific records in relation to any claims for Carbon Price Relief, as well as where actual emissions data is reported on the CBAM returns.
Importantly, the records must show the weight of the CBAM good, measured in kilograms and excluding packaging.
Calculating the CBAM rate
The amount of CBAM payable must be calculated by multiplying:
- the quantity of embodied greenhouse gas emissions in the goods (measured in tonnes of carbon dioxide equivalent), and
- the carbon price, applicable to the relevant goods, as published by HM Treasury for the relevant CBAM sector and the financial quarter in which the CBAM liability arises.
HMRC has recently published guidance (please see here) which provides further details on how the quantity of embodied emissions in a CBAM good is to be determined, including in relation not which emissions must be taken into account when calculating CBAM liability.
The principles for claiming Carbon Price Relief (“CPR”)
The regime includes the CPR, which will allow importers to reduce their CBAM liability.
There are three conditions that must be satisfied to claim CPR:
- The carbon price must be recognised as being part of a qualifying carbon scheme, which can be a carbon tax, an emissions trading scheme, or a scheme that places a price on the embodied emissions of imported goods;
- The importer must receive a completed carbon pricing verification form from the relevant factory, plant, or facility that manufactured or processed the goods; and
- The carbon pricing verification form must be completed by an independent verifier who meets certain required standards.
Reimbursement arrangements
Finally, where a person seeks a repayment of CBAM, they must show that receiving the repayment would not leave them unfairly benefiting at another person’s expense. This is particularly relevant where the importer has passed the cost of CBAM on to its customers through higher prices. In such cases, HMRC will require the claimant to put in place reimbursement arrangements to ensure that any repayment is passed on to the person who ultimately bore the cost.
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With the entry into force of the UK’s CBAM regime now less than six months away and given the differences to the EU’s regime, now is the time to start the process for assessing how this regime may affect your operations and any systems changes required. If you have any questions about the new requirements or would like assistance in assessing the impact of CBAM on your business, please get in touch with a member of our team.
