EU CBAM Enters Its Definitive Phase: What UK Exporters Must Know

Key Takeaways

• The EU Carbon Border Adjustment Mechanism entered its definitive phase on 1 January 2026, replacing the transitional reporting-only period with actual financial obligations
• EU importers must now purchase CBAM certificates reflecting the embedded carbon in goods imported from non-EU countries, including the UK
• Affected sectors include iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity — covering approximately £4.2 billion of UK exports to the EU
• UK ETS allowances already paid on exported goods can be deducted from the CBAM liability, but the administrative burden of proving this falls on the UK exporter
• Companies using default emission values rather than verified actual values will face higher CBAM costs, creating a strong incentive to invest in emissions measurement

From Transitional to Definitive: What Changed on 1 January 2026

The EU CBAM transitional period (October 2023 – December 2025) required only quarterly reporting of embedded emissions in imported goods. No financial payments were due. That changed fundamentally on 1 January 2026.

Under the definitive regime, EU importers must:

• Register as authorised CBAM declarants with their national competent authority
• Calculate the actual embedded emissions in each consignment of CBAM goods
• Purchase CBAM certificates at a price linked to the weekly average EU ETS allowance auction price
• Surrender sufficient certificates by 31 May each year to cover the previous calendar year’s imports

For UK exporters, the practical effect is that your EU customers now face a carbon cost on your products. If your competitors in jurisdictions with lower carbon costs can demonstrate lower embedded emissions, your price competitiveness is directly affected.

Which UK Products Are in Scope

CBAM covers six product categories, identified by their Combined Nomenclature (CN) codes:

• Iron and steel: Including crude steel, steel products, iron castings, ferro-alloys, and certain downstream products like screws, bolts, and tubes
• Aluminium: Unwrought aluminium, aluminium powders, bars, wire, plates, tubes, and foil
• Cement: Portland cement, aluminous cement, slag cement, and clinker
• Fertilisers: Ammonia, nitric acid, urea, ammonium nitrate, and compound fertilisers containing nitrogen
• Hydrogen: All forms of hydrogen
• Electricity: Electrical energy (relevant for interconnector flows)

The scope includes both direct emissions (from the production process) and, for certain products, indirect emissions (from electricity consumed during production). Indirect emissions are included for cement, fertilisers, and aluminium, but not for iron and steel in the initial phase.

How CBAM Certificates Are Priced

CBAM certificate prices are set weekly, calculated as the average closing price of EU ETS allowances on the common auction platform for the preceding week. As of January 2026, this places the CBAM certificate price in the range of €65–€75 per tonne of CO₂e.

The cost to an EU importer is calculated as:

CBAM liability = (Embedded emissions per tonne of product × Tonnes imported) × CBAM certificate price − UK carbon price already paid

For a UK steel exporter with embedded emissions of 1.8 tCO₂e per tonne of crude steel, exporting 10,000 tonnes to the EU, the gross CBAM liability would be approximately €1.17–€1.35 million before any UK ETS deduction.

Deducting UK ETS Costs

The CBAM regulation allows deduction of any carbon price effectively paid in the country of origin. For UK exporters, this means UK ETS allowance costs can reduce the CBAM liability. However, the deduction process is not automatic:

• The UK exporter must provide documentary evidence of UK ETS compliance costs attributable to the exported goods
• The evidence must demonstrate that the carbon price was not refunded, rebated, or otherwise compensated
• Free allowances received under the UK ETS reduce the eligible deduction — only the cost of purchased allowances counts
• The exchange rate between GBP and EUR at the time of export determines the deduction value

Given that UK ETS allowance prices (£40–£55) are currently lower than EU ETS prices (€65–€75), a residual CBAM liability will remain even after full UK ETS deduction. This price differential is the effective carbon tariff on UK exports to the EU.

Documentation Requirements

UK exporters should prepare:

• Verified emissions data for each product covered by CBAM, using the EU’s prescribed calculation methodology
• Evidence of UK ETS allowances surrendered attributable to the exported products
• Production records linking specific batches to specific emission intensities
• Third-party verification reports where required by the EU importer

Default Values vs Actual Values

EU importers can use either actual embedded emissions data (provided by the exporter) or default values published by the European Commission. The default values are deliberately conservative — they are set at the average emission intensity of the worst-performing 10% of EU installations for each product.

This means that UK exporters who fail to provide verified actual emissions data will see their products assessed at a much higher carbon intensity than their true performance. For most UK producers, whose facilities are subject to UK ETS and operate with relatively modern technology, actual values will be significantly lower than defaults.

The commercial incentive is clear: investing in proper emissions measurement and verification will directly reduce your EU customers’ CBAM costs and protect your competitive position.

Impact on UK-EU Trade

CBAM creates several strategic considerations for UK exporters:

• Price transparency: Embedded carbon now has a visible cost in EU trade. UK exporters with lower emissions intensity gain a competitive advantage over higher-emitting competitors from other non-EU countries
• Supply chain restructuring: Some EU buyers may seek to source from within the EU (where free allowances still partially apply during the transition) or from countries that negotiate exemptions
• UK-EU carbon price convergence: CBAM creates indirect pressure for UK ETS prices to converge with EU ETS prices. If they do, the residual CBAM liability shrinks
• UK CBAM interaction: The UK’s own CBAM (launching January 2027) will create reciprocal obligations. Companies need to plan for both directions of trade

Preparation Checklist for UK Exporters

• Identify exposure: Map all products exported to the EU against CBAM CN codes. Include indirect exports through intermediaries
• Calculate actual embedded emissions: Use the EU’s CBAM calculation methodology (not the UK ETS methodology, which differs in some respects) to determine product-level emission intensities
• Engage with EU customers: Proactively share emissions data and discuss who bears the CBAM cost in your commercial arrangements
• Document UK ETS costs: Establish systems to track and evidence UK ETS allowance costs attributable to exported products
• Consider third-party verification: While not mandatory for all products in the first year, verified data builds trust and may become required
• Monitor EU Commission implementing acts: Detailed rules on verification, default values, and country-level exemptions are still being finalised
• Plan for UK CBAM: Align your CBAM compliance systems to handle both EU and UK requirements from January 2027

Need Help with EU CBAM Compliance?

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