UK CBAM Secondary Legislation Published: Detailed Rules for Carbon Border Adjustment from January 2027

Key Takeaways

• The UK government has published draft statutory instruments for the UK CBAM, providing detailed implementation rules ahead of the 1 January 2027 launch
• The UK CBAM covers a broader product scope than the EU CBAM, adding ceramics and glass to the iron and steel, aluminium, cement, fertilisers, and hydrogen already covered by the EU scheme
• The UK CBAM rate will be linked to the UK ETS allowance price, not the EU ETS price, creating a separate carbon border price for imports into the UK
• Importers must register as UK CBAM declarants and submit quarterly declarations with embedded emissions data and corresponding payment
• There is currently no mutual recognition between UK and EU CBAM schemes, meaning goods in transit through the EU to the UK (or vice versa) could face both charges

Product Scope: Broader Than the EU

The UK CBAM applies to imports of goods in the following sectors:

• Iron and steel: Crude steel, steel products, iron castings, ferro-alloys, and specified downstream products
• Aluminium: Unwrought aluminium, aluminium products, and specified semi-finished goods
• Cement: Clinker, Portland cement, aluminous cement, and related products
• Fertilisers: Ammonia, urea, ammonium nitrate, and compound nitrogen fertilisers
• Hydrogen: All forms
• Ceramics: Ceramic tiles, bricks, refractories, and sanitaryware — not covered by EU CBAM
• Glass: Flat glass, container glass, glass fibres — not covered by EU CBAM

The inclusion of ceramics and glass reflects the UK’s particular industrial base and the carbon leakage risk assessment conducted by HMRC and DESNZ. These sectors are significant energy users in the UK, and without border adjustment, UK ETS costs could disadvantage domestic producers against imports from countries without equivalent carbon pricing.

How the UK CBAM Rate Works

Unlike the EU CBAM (which uses a weekly certificate price based on EU ETS auctions), the UK CBAM uses a quarterly rate linked to the average UK ETS allowance price over the preceding quarter. The charge per tonne of CO₂e embedded in imported goods is calculated as:

UK CBAM charge = Embedded emissions (tCO₂e) × UK CBAM rate (£/tCO₂e) − Carbon price already paid in country of origin

The deduction for carbon prices paid in the country of origin operates similarly to the EU CBAM: importers can reduce their UK CBAM liability by demonstrating that an effective carbon price has been paid on the goods in the exporting country. This covers ETS allowance costs, carbon taxes, and equivalent instruments, but not voluntary carbon offset purchases.

Embedded Emissions Calculation

The secondary legislation prescribes specific methodologies for calculating embedded emissions:

• Direct emissions: From the production process itself (e.g., chemical reactions in cement production, reduction of alumina in aluminium smelting)
• Indirect emissions: From electricity consumed during production (applicable to aluminium, cement, and fertilisers)
• Precursor emissions: Embedded emissions in precursor materials (e.g., clinker used to produce cement, iron used to produce steel)

Importers may use verified actual emissions data from the foreign producer, or default values published by HMRC. Default values are set conservatively — at the emission intensity of the least efficient producers globally — creating a strong incentive for importers to obtain actual data from their suppliers.

Registration and Compliance Cycle

Registration

Any person or entity importing CBAM goods into the UK above a de minimis threshold must register as a UK CBAM declarant with HMRC. Registration opens from 1 October 2026. The de minimis threshold exempts imports below £10,000 per quarter or below 150 tonnes per quarter per product category.

Quarterly Declaration and Payment

CBAM declarants must submit quarterly declarations within 30 days of the end of each calendar quarter:

• Q1 declaration (Jan–Mar): due by 30 April
• Q2 declaration (Apr–Jun): due by 31 July
• Q3 declaration (Jul–Sep): due by 31 October
• Q4 declaration (Oct–Dec): due by 31 January

Each declaration must include: the quantity and type of CBAM goods imported, the embedded emissions per tonne of product, the UK CBAM rate for the relevant quarter, any deductions for carbon prices paid in the country of origin, and the net CBAM charge payable.

Simplified Procedures for Low-Volume Importers

The legislation introduces a simplified procedure for importers whose total CBAM liability is below £50,000 per year. These importers may use default emission values without penalty and submit annual rather than quarterly declarations. This reduces the compliance burden for smaller businesses that occasionally import CBAM goods.

No UK-EU Mutual Recognition (Yet)

The secondary legislation does not include any provision for mutual recognition with the EU CBAM. This creates several practical issues:

• Double exposure: Goods manufactured in a third country, imported into the EU, and then re-exported to the UK could theoretically face both EU and UK CBAM charges (though the EU carbon price paid could be deducted from the UK liability)
• Divergent methodologies: The UK and EU use different calculation methodologies for embedded emissions, different default values, and different product scopes, requiring exporters to maintain two sets of compliance data
• Future alignment: The government has indicated that mutual recognition discussions with the EU are ongoing, but no agreement is expected before mid-2027 at the earliest

Penalties for Non-Compliance

The draft statutory instruments set out a graduated penalty regime:

• Failure to register: Fixed penalty of £5,000 plus daily penalties of £500 until registration is completed
• Late or inaccurate declarations: Penalties of up to 100% of the CBAM charge that should have been paid
• Failure to pay: Interest charged at the standard HMRC rate, plus penalties for deliberate non-payment
• Fraudulent claims: Criminal penalties for deliberately false declarations regarding embedded emissions or carbon prices paid

What Importers Should Do Now

• Check your commodity codes: Map your imports against the UK CBAM product list (published alongside the secondary legislation). Remember the UK scope is broader than the EU
• Register with HMRC: Registration opens 1 October 2026 — register early to avoid last-minute issues
• Request emissions data from suppliers: Contact foreign suppliers now to obtain actual embedded emissions data. The sooner you start this conversation, the more likely you are to have verified data by Q1 2027
• Assess your CBAM liability: Calculate your expected quarterly CBAM charge to budget for the additional cost
• Review supply chain alternatives: If certain suppliers are in high-emission jurisdictions, consider whether alternative sources with lower embedded emissions could reduce your CBAM costs
• Coordinate with EU CBAM compliance: If you also import into the EU, align your embedded emissions data collection to serve both UK and EU CBAM requirements

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