UK CBAM: a second carbon border, from 1 January 2027.

The UK carbon border adjustment mechanism puts a carbon price on specified goods imported from sectors at risk of carbon leakage, so that they face a price comparable to what UK producers pay under the UK Emissions Trading Scheme (UK ETS). The primary legislation is Part 5 of the Finance Act 2026. The detail sits in regulations made in 2026, among them the CBAM (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026, the CBAM (Administrative Provisions) Regulations 2026 and the CBAM (Emissions and Verification) Regulations 2026, together with force of law notices and HMRC guidance on GOV.UK.

It is a tax, administered by HMRC. Unlike the EU CBAM there are no certificates to buy and surrender: the importer files a return and pays the CBAM liability.

Five sectors are in scope from 1 January 2027: aluminium, cement, fertiliser, hydrogen, and iron and steel. HMRC publishes the commodity codes in its guidance on checking which goods are in scope.

• Glass and ceramics are out. Both were in the original proposals. The government’s response of 30 October 2024 confirmed that products from the glass and ceramics sectors will not be in scope from 2027.
• Direct emissions only. The charge is based on the direct emissions embodied in the goods, including the emissions embodied in relevant precursor goods. HMRC’s technical guidance states that CBAM does not include indirect emissions from the use of electricity; their inclusion was delayed at Budget 2025.
• Electricity is not a UK CBAM good. The EU CBAM covers imported electricity; the UK CBAM does not.

The liable person is the importer of the CBAM goods: the person named on the import declaration where customs duty is payable, even if an agent, freight forwarder or customs broker makes the declaration. Importers established outside the UK can be liable too. An exporter outside the UK is never the liable person, but it is the only source of actual emissions data.

An importer must register with HMRC when the value of CBAM goods it imports reaches the threshold of £50,000, under either of two tests:

• Backward test: on the first day of each month, CBAM goods imported in the previous 12 months total £50,000 or more.
• Forward test: it expects to import CBAM goods worth £50,000 or more within the next 30 days.

Imports before 1 January 2027 do not count. Registration opens on 1 January 2028, and for the first calendar year businesses have until 31 January 2028 to register. A business that becomes liable before registration opens must keep records of all CBAM goods it imports from 1 January 2027.

The first accounting period is 12 months long. After that, returns move to quarters.

Dates as given in the HMRC policy summary, which describes a gradual move to a two-month return and payment window. Penalties for late registration, late returns, late payment and errors follow HMRC’s existing regimes, and criminal offences apply to fraudulent evasion.

There is no single headline rate. The government calculates a rate per sector, in pounds per tonne of CO₂e, and publishes it at the start of each quarter from 1 January 2027. The rate that applies depends on the sector of the good and the quarter in which it is imported.

The rate starts from the UK ETS: the mean of UK ETS auction clearing prices over a reference quarter. It is then reduced to reflect the free allowances UK producers in that sector still receive, using a baseline free allocation percentage and a phase-out reduction factor:

CBAM rate = average UK ETS price × [1 − (baseline free allocation % × reduction factor)]

The liability for a consignment is its weight × its emissions intensity (actual or default, in tCO₂e per tonne) × the sector rate, less any carbon price relief.

For each import, the importer reports an emissions intensity in tCO₂e per tonne of good. It has two choices:

• Actual verified emissions from the overseas installation, monitored over a calendar year (1 January to 31 December) and backed by a verification report, or a good-specific verification summary, from an eligible accredited verifier. For goods imported in 2027 the importer uses the most recently verified intensity for 2027, or the previous calendar year if that is not available. From 2028 it may use the most recent verified figure from either of the two calendar years before import.
• Default values published by the government. There is one default value per CBAM good, regardless of origin, in tCO₂e per tonne. Actual data cannot be used for precursors where the default value is used for the final good.

Verification under the UK rules requires a verifier accredited by a body that is a full member of the Global Accreditation Cooperation, against ISO/IEC 17029:2019 and ISO 14065:2020. HMRC’s technical guidance requires a physical site visit to the installation at least once in the verification process, with narrow conditions for waiving it or replacing it with a virtual visit, and sets a materiality threshold of 5% of the good’s emissions intensity. See CBAM verification for the EU side.

Where the embodied emissions were already subject to a qualifying carbon price in the country of production, the importer can claim carbon price relief. Total relief cannot exceed the CBAM liability. HMRC’s list of currently qualifying schemes, based on information as of 19 June 2026 and stated to be non-exhaustive, includes the EU ETS and the Montenegro Emissions Trading Scheme. For a Montenegrin producer that pays under its national scheme, the evidence of that payment becomes part of what a UK buyer asks for.

At the UK–EU summit of 19 May 2025 the two sides agreed, in their Common Understanding, to work towards linking the UK ETS and the EU ETS, and said a link should create the conditions for goods from both jurisdictions to be exempt from each other’s CBAM. The Council of the EU authorised the Commission to open negotiations on 13 November 2025.

As of 6 November 2026 no linking agreement has been published, and HMRC’s policy summary states that no jurisdictions are currently exempt from the UK CBAM. Press reports in early November say the two sides expect to announce the conclusion of the negotiations at an EU–UK summit on 20 November 2026. Even then, the CBAM exemptions need changes to each side’s law before they apply.