EU CBAM: What UK Exporters Need to Know in 2026

Key Takeaways

• The CBAM transitional phase ended December 2025 — the definitive phase is now live with binding financial obligations
• UK exporters of steel, aluminium, cement, fertilisers, electricity, and hydrogen face carbon border charges on EU sales
• Using actual installation-level emissions data rather than EU default values can reduce CBAM liability by 20–40%
• The UK is not in the EU ETS — no automatic carbon cost deduction applies to UK goods
• The UK has announced its own CBAM from January 2027, creating dual compliance obligations for cross-border businesses

What Changed on 1 January 2026

The EU Carbon Border Adjustment Mechanism entered its definitive phase on 1 January 2026. During the transitional period (October 2023 to December 2025), EU importers were required to submit quarterly emissions reports on CBAM-scope goods, but no financial payments were due. That period served as a data-gathering exercise for both importers and the European Commission.

From 2026, the financial dimension is active. EU importers must now purchase and surrender CBAM certificates corresponding to the embedded emissions in imported goods. The price of each CBAM certificate is linked to the weekly average auction price of EU ETS allowances — currently averaging between EUR 85 and EUR 95 per tonne of CO2e. For UK exporters, this represents a direct cost increase on goods sold into the EU market, passed through supply chains or absorbed depending on contractual arrangements.

The mechanism is administered by the European Commission through the CBAM Authority, with national competent authorities in each member state responsible for registration, verification, and enforcement. EU importers who fail to surrender sufficient certificates face penalties of three times the average EU ETS allowance price for each tonne of embedded emissions not covered.

Which Sectors Are Affected

CBAM covers six product categories defined in Annex I of Regulation (EU) 2023/956:

• Cement — clinker and Portland cement (CN 2523, 2516)
• Iron and steel — crude steel, hot-rolled and cold-rolled products, coated products, stainless steel, pipes, and tubes (CN 72, 73 series)
• Aluminium — unwrought aluminium, aluminium alloys, bars, profiles, plates, foil, and tubes (CN 76 series)
• Fertilisers — nitrogen-based fertilisers, urea, ammonium nitrate, mixed fertilisers (CN 28, 31 series)
• Electricity — direct electricity imports into the EU customs territory
• Hydrogen — grey, blue, and green hydrogen (CN 2804 10 00)

UK manufacturers in these sectors who export to EU customers are directly affected. The EU importer bears the legal obligation to purchase CBAM certificates, but the commercial reality is that carbon costs will be negotiated across the supply chain. UK exporters who cannot demonstrate low embedded emissions risk losing competitiveness against producers in countries with higher carbon pricing or cleaner production processes.

Actual vs Default Emissions Values

One of the most significant commercial decisions for UK exporters is whether to provide actual installation-level emissions data or rely on EU default values. The distinction has substantial financial implications.

Default values are set by the European Commission at levels representing the average emissions intensity of the exporting country, or — in the absence of reliable country data — at the average intensity of the 10% worst-performing EU installations. For most UK producers, default values will overstate actual emissions because UK manufacturing generally benefits from a cleaner electricity grid and higher energy efficiency standards than the default assumes.

Actual values require installation-level monitoring, reporting, and third-party verification in accordance with the CBAM Implementing Regulation methodology. This requires measuring direct emissions from the production process (Scope 1) and indirect emissions from electricity consumption (Scope 2), then calculating specific embedded emissions per tonne of product.

The investment in actual emissions data typically pays for itself. UK steel producers, for example, have reported that actual emissions values are 20-40% lower than EU defaults, representing significant certificate cost savings for their EU importers and preserving price competitiveness.

UK-Specific Considerations

UK exporters face a structural challenge that distinguishes them from competitors in countries with linked or equivalent carbon pricing systems. The UK is not part of the EU ETS, and no current arrangement provides automatic deduction of UK carbon costs from CBAM obligations.

Under Article 9 of the CBAM Regulation, EU importers can claim a reduction in the number of CBAM certificates required if a carbon price has been effectively paid in the country of origin. However, this requires a formal determination by the European Commission that the UK carbon pricing mechanism provides equivalent coverage. As of January 2026, no such determination has been made for the UK ETS.

This means UK goods currently face the full CBAM certificate cost, even though UK manufacturers already pay for UK ETS allowances on their emissions. UK businesses are effectively paying carbon costs twice: once through the UK ETS and again through CBAM certificates on their EU exports. The UK Government has raised this issue in bilateral discussions, but resolution is not expected in the near term.

The UK CBAM: Preparing for Dual Compliance

The UK Government announced its own Carbon Border Adjustment Mechanism, scheduled to take effect from 1 January 2027. The UK CBAM will apply to imports of aluminium, cement, fertiliser, hydrogen, and iron and steel — a similar but not identical product scope to the EU mechanism.

For UK businesses that both export to the EU and import CBAM-scope goods into the UK, this creates dual compliance obligations. Different product scope definitions, different embedded emissions calculation methodologies, and different certificate pricing mechanisms mean that parallel compliance systems may be necessary.

Secondary legislation for the UK CBAM was laid before Parliament in September 2026, providing detailed rules on registration, emissions calculation methodology, and certificate pricing. UK importers should begin preparing their compliance systems, supplier engagement processes, and cost modelling now.

What UK Organisations Should Do Now

1. Map your CN codes — identify precisely which products fall within CBAM Annex I categories using the Combined Nomenclature classification system
2. Establish product-level emissions data — invest in installation-level emissions monitoring to replace default values with actual verified data
3. Engage your EU importers — understand how CBAM certificate costs will be allocated in your commercial agreements and adjust pricing accordingly
4. Model financial exposure — calculate the cost impact under different EU ETS price scenarios (EUR 70, EUR 90, EUR 120 per tonne) and assess the breakeven point for actual emissions investment
5. Build supplier data processes — if you purchase precursors from upstream suppliers, establish formal data collection workflows for their embedded emissions
6. Prepare for UK CBAM — begin parallel preparation for UK CBAM registration and reporting obligations from January 2027
7. Seek verification — engage an accredited verifier to certify your actual emissions data in accordance with CBAM Implementing Regulation requirements

Financial Impact Example

Consider a UK steel manufacturer exporting 50,000 tonnes per year to EU customers. At a default embedded emissions intensity of 1.85 tCO2e per tonne of product and an EU ETS price of EUR 90 per tonne:

• Annual embedded emissions: 92,500 tCO2e
• CBAM certificate cost (default values): EUR 8.3 million
• If actual emissions are 30% lower (1.30 tCO2e/t): EUR 5.85 million
• Annual saving from actual emissions data: EUR 2.5 million

These figures illustrate why investment in emissions measurement infrastructure is not just an environmental obligation but a commercial necessity.

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