UK to introduce Carbon Border Adjustment Mechanism by 2027

The UK government has confirmed plans to implement a Carbon Border Adjustment Mechanism (CBAM) starting in January 2027, aiming to reduce carbon leakage and support domestic decarbonisation efforts. This initiative responds to feedback from a recent policy design consultation, where a majority of stakeholders endorsed measures to prevent carbon-intensive imports from undermining the UK's carbon reduction goals. The CBAM will apply a carbon price to imported goods in high-emissions sectors to ensure imported products face equivalent carbon costs as domestically produced goods.

Objective and Scope of the UK CBAM

The UK CBAM seeks to mitigate "carbon leakage," where production shifts abroad to avoid higher carbon costs, undermining emission reduction efforts. The mechanism will initially target high-emission sectors, including aluminium, cement, fertiliser, hydrogen, iron, and steel. Informed by the UK Emissions Trading Scheme (UK ETS), the policy aligns with the EU's CBAM scope, excluding electricity but considering glass and ceramics for future inclusion.

Through CBAM, the UK will apply a carbon charge on imported goods reflecting the UK’s carbon pricing, net of any reductions like free allowances. This approach ensures that imported goods are subject to costs similar to those borne by UK producers, deterring businesses from relocating to lower-cost regions and supporting fair competition.

Responses and International Coordination

The government received over 340 responses from stakeholders, with trade associations, manufacturers, and academia among the largest groups of respondents. While most stakeholders supported the CBAM, some voiced concerns over the scope, suggesting the exclusion of sectors with less significant domestic production. Conversely, others proposed expanding the scope to include additional products and sectors, like downstream hydrogen derivatives and battery materials.

Internationally, the CBAM has garnered attention, prompting engagement with global partners, including participation in forums like the WTO and the UN Framework Convention on Climate Change. The UK aims to balance domestic CBAM implementation with ongoing support for global carbon pricing initiatives and broader climate action, such as through the UK’s International Climate Finance programs.

Implementation and Next Steps

To ease the transition, the government delayed the CBAM’s start date to 2027, allowing businesses to prepare for the new compliance requirements. By that time, the UK ETS will reduce available permits by 45%, further supporting domestic decarbonisation efforts. The government will continue consulting with stakeholders as it finalizes the CBAM’s operational details, including defining specific commodity codes and administrative procedures.

Source: UK Government, Photo: Fotolia