The UK CBAM (Carbon Border Adjustment Mechanism) is a significant step towards achieving the UK’s decarbonization goals and combating climate change. Like the EU CBAM, unprepared businesses who import or export to the UK could face higher costs and carbon reporting challenges.
The UK Carbon Border Adjustment Mechanism (CBAM) is set to be implemented as early as 2026, but the precise timeline has not been confirmed.
By implementing the CBAM, the UK aims to protect its industries, reduce carbon leakage risk, and encourage global partners to adopt more sustainable practices. Carbon leakage risk occurs when domestic industries face stringent emissions regulations, leading them to shift production to countries with weaker climate policies.
The UK government is currently working on the legislative process to establish the CBAM. This involves consultations with various stakeholders, industry experts, and policymakers to design an effective mechanism that aligns with the nation's climate goals.
A consultation ran from 30 March until 22 June 2023. The UK government published a consultation document and factsheet on measures to mitigate future carbon leakage risk, which included potential policies such as:
The UK government could formally announce the CBAM as early as the Autumn statement, but it may get pushed to Spring.
The calculation of UK CBAM certificate price will be based on the carbon footprint of imported goods. Companies exporting to the UK will be required to pay a carbon price, reflecting the difference between the carbon price in the country of origin (if applicable) and the UK's carbon price (which is currently one of the highest of all major trading partners).
There is currently a question mark over whether the UK will need to peg the UK ETS price to the EUA price, because if the allowances are not at parity, it will create a significant administrative burden in calculating border levies.
The measurement of emissions for UK CBAM reporting is likely to be similar to the EU's methodology for calculating CBAM emissions.
Companies can prepare for the UK CBAM and stay competitive in the UK market by:
Companies can prepare for the CBAM by using CarbonChain to measure the emissions embedded in their imported products and the carbon intensity of supplier facilities, as well as identify lower-carbon options.
The EU CBAM will apply to UK-produced goods. The UK will also launch its own CBAM as part of its efforts to address carbon leakage and promote a green transition.
A CBAM tax is a tariff imposed on imported goods based on their carbon footprint. It aims to level the playing field for domestic industries and incentivize international partners to reduce emissions.
The CBAM would cover the embedded emissions in goods imported into the UK, including:
This includes emissions generated during the production, transportation, and distribution of the products.