How is the UK's carbon border tax different from the EU's CBAM?

UK CBAM is administered under UK legislation by HMRC, with the liable person being the customs declarant (or the person on whose behalf the declaration is made, or the person on whose behalf the goods are moved into the UK where there are no customs controls). Authorisation in the EU CBAM gives no status in the UK and vice versa. Exporters that ship to both blocks should treat them as parallel obligations with their own scope, data and registration requirements; the installation-level emissions dataset is largely reusable, the legal and registration layer is not.

UK CBAM covers aluminium, cement, fertilisers, hydrogen and iron and steel from 1 January 2027. Glass and ceramics, both proposed in the December 2023 consultation, are not in scope from 2027. The specific commodity codes are listed in Annex B of the Government Response to the consultation. The government is publishing a Call for Evidence on the fuel sector and is reviewing the feasibility of including refined products in future. The product scope will be kept under review beyond 2027.

UK CBAM applies to direct embodied emissions and to direct emissions in relevant precursor goods further up the value chain. Indirect emissions (purchased electricity) are excluded from UK scope at launch and the earliest date for inclusion is 2029. The reason given is continued support for the Energy Intensive Industries (EII) Compensation Scheme, which compensates UK producers for the indirect cost of carbon in electricity prices. This is a material difference from the EU regime, which includes indirect emissions in transitional reporting.

The UK CBAM rate is set per tonne of embodied emissions and tracks the carbon price faced by UK domestic producers in the UK ETS, adjusted for free allocations. The primary legislation defines the rate as a sectoral average of emissions covered by free allowances over a baseline period, adjusted annually by a reduction factor that reflects the phase-out of free allowances under the UK ETS. Free allocation is being phased out over an indicative nine-year window beginning in 2027 for CBAM-covered sectors. The rate therefore rises over time as free allocation falls.

The liable person must register with HMRC if the value of CBAM goods imported over the preceding 12 months, or expected over the coming 30 days, exceeds GBP 50,000. Registration is then required within 30 days of becoming liable, with a longer window in the first year. The threshold is materially higher than the EU's consignment-level Article 27a de minimis; UK CBAM operates as a periodic tax, not a per-consignment certificate surrender.

The first UK CBAM accounting period is annual (1 January 2027 to 31 December 2027), with payment due at the end of May 2028. Thereafter, accounting periods are quarterly, with payment due two months after the end of each period. The return is filed online with HMRC. This is a tax return cycle, not a certificate-purchase-and-surrender cycle as under the EU regime.

UK CBAM liability can be reduced where the embodied emissions are subject to a deductible carbon price overseas and the importer provides evidence. A deductible scheme is one that prices emissions directly or indirectly through a tax, an emissions trading scheme or another CBAM. HMRC guidance on accepted schemes and the evidence standard will follow.

At the UK-EU Summit on 19 May 2025, the UK and EU agreed to work towards linking their respective Emissions Trading Schemes. A linked ETS would create the conditions for goods from each jurisdiction to benefit from mutual exemptions under the respective CBAMs, subject to the relevant provisions of EU and UK legislation. Until and unless the link is in force, UK and EU CBAMs run as separate regimes and exports between them attract the other side's border price.