What is the fourth pillar of sustainability?

In recent years, a fourth pillar of sustainability (alongside economic, environmental and social) has been emphasized, particularly in policymaking. This fourth pillar is cultural sustainability. Cultural sustainability recognizes the need to preserve cultural diversity and heritage, and support their transmission to future generations.

Is sustainability the same as ESG?

Sustainability and ESG (Environmental, Social, and Governance) are distinct but overlapping concepts. Sustainability is a commitment to positive economic, social and environmental benefits for current and future generations, and an implementation of that commitment. ESG is a framework to evaluate the environmental, social, and governance practices of companies. Investors use ESG criteria to measure the sustainability and ethical impacts of investments, and to identify companies that manage risks effectively.

UK Carbon Border Adjustment Mechanism

What is the UK Carbon Border Adjustment Mechanism?

The UK CBAM (Carbon Border Adjustment Mechanism) is a significant step towards achieving the UK’s decarbonisation goals and combating climate change.

Goods imported into the UK from countries with a lower or no carbon price will have to pay a levy by 2027.

On October 30, 2024 the UK announced key updates to its approach to CBAM:

UK CBAM date is confirmed as January 1, 2027. This means a carbon price on goods in the aluminum, cement, fertilizer, steel, hydrogen, iron, and steel sectors.

It won’t include glass and ceramics products, as previously proposed, due to feasibility concerns that were raised during the consultation process from March 21, 2024 until June 13, 2024.

Only businesses importing £50,000 or more of CBAM goods over a 12-month period will need to comply (an increase from the previous minimum threshold of £10,000).

Like the EU CBAM, unprepared businesses who import or export to the UK could face higher costs and carbon reporting challenges.

When is CBAM being implemented in the UK?

The UK Carbon Border Adjustment Mechanism (CBAM) will be introduced January 1, 2027. Initially, the UK government committed to an implementation as early as 2026, but updated the timeline following its public consultation.

Why is CBAM being proposed in the UK?

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. A UK CBAM will ensure that UK decarbonisation efforts lead to a true reduction in global emissions rather than simply displacing carbon emissions overseas.

Which sectors will UK CBAM apply to?

The UK CBAM is designed to tackle the most carbon-intensive industrial goods imported to the UK, putting a carbon price on products in the aluminum, cement, fertiliser, hydrogen, iron and steel sectors.

Within the above economic sectors, the UK CBAM will only apply to specific imported ‘CBAM goods’ as determined by the product level scope of the UK CBAM. These goods are identified by commodity code in Annex B of the government response document.

Glass and ceramics products will not be in scope of the UK CBAM from 2027, as previously proposed — though they could potentially be included at a later date.

Legislative process of CBAM UK

Following a consultation process that ran for 12 weeks and received over 340 responses from stakeholders including UK and overseas industry, trade associations, importers, think tanks and academics, the UK government responded with an effective mechanism that aligns with the nation’s climate goals.

How is the UK CBAM calculated?

The calculation of the UK CBAM liability will center on the carbon footprint of imported goods, with importers required to pay a carbon price that bridges the difference between the UK’s carbon pricing mechanisms and any explicit carbon price paid in the country of origin (if applicable). Implicit carbon pricing will not be recognized.

The UK CBAM is set to work in the following way:

The "tax point," which is when the CBAM liability arises, will be the date the good is released into the UK domestic market if customs controls are in place, or the date the good enters the UK in the absence of customs controls. There are two exceptions to this general rule:

For goods exported under the outward processing procedure and subsequently re-imported into the UK as CBAM goods, the CBAM tax point will be triggered upon entry into free circulation, with the liability based solely on emissions generated during processing outside the UK.

CBAM goods originating outside the UK and re-imported using the returned goods relief will be exempt from UK CBAM liability, provided they meet the relief conditions for customs purposes. This exemption applies to CBAM goods re-imported within three years in their original, unaltered state, keeping them out of scope and free from CBAM charges.

Individuals will not need to register or account for CBAM if the total value of their CBAM goods passing a tax point is below a minimum threshold of GBP 50,000 over a rolling 12-month period.

Those liable will be required to submit a CBAM return and pay the due amount at the end of each accounting period. The first accounting period will cover imports from January 1 to December 31, 2027, and subsequent periods will be quarterly from 2028 onwards.

The CBAM rate will be adjusted quarterly, reflecting the average UK ETS price over the prior quarter. Importers will self-assess their liability by:

Multiplying the total emissions per type of good by the applicable UK CBAM rate, and
Deducting any explicit carbon price already paid in the country of origin, provided that it meets the UK’s definition of an explicit carbon price (such as carbon taxes or emissions trading schemes)

The UK CBAM will apply to both direct and indirect emissions:

Direct emissions are those from production processes, including emissions from heating and cooling, whether produced on-site or off-site.
It should be noted that the government has announced that indirect emissions associated with the production of CBAM goods will not be included in scope of CBAM at its implementation on 1 January 2027. Their inclusion in CBAM scope will be delayed until 2029 at the earliest. This is to reflect continued support for the Energy Intensive Industries (EII) Compensation Scheme.
Indirect emissions cover emissions from electricity consumed during production, ensuring UK CBAM charges reflect the carbon cost for emissions associated with energy consumption in line with the UK ETS and CPS.

Importers have two options to determine the emissions embodied in imported goods for CBAM liability calculation:

Actual emissions data: Verified data on the actual emissions generated during production, which aligns with EU requirements and is preferable where available.
Default emission values: Government-provided default values calculated based on average emissions by product type and key trading partners. From 2027, the government will proceed with a single default value set per product. The methodology for calculation will be confirmed and published in advance of the CBAM introduction in 2027. Default values will be set for an initial period (2027-2030) and will undergo a review before potential adjustments are implemented from 2031 at the earliest.

The first CBAM accounting period will cover imports from January 1 to December 31, 2027, with subsequent quarterly periods beginning in 2028. This structured approach aims to ensure that imported goods meet the same carbon standards as those produced domestically, fostering a level playing field and incentivizing lower-carbon imports.

How do companies prepare for CBAM in the UK?

Companies can prepare for the UK CBAM and stay competitive in the UK market by:

Conducting a thorough assessment of their carbon emissions;
Implementing measures to reduce their carbon footprint;
Partnering with lower-carbon suppliers;
Investing in cleaner technologies.

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 suppliers.

Get ready for CBAM reporting