Carbon Border Taxes: What UK businesses need to know

The EU’s new Carbon Border Adjustment Mechanism (CBAM) has come into force. CBAMs impose duties on certain imported goods (iron and steel, cement, aluminium, fertilisers, electricity, and hydrogen) based on the greenhouse gas (GHG) emissions associated with their production and create reporting obligations for importers.  

The UK is planning to follow suit by introducing its own CBAM on the same goods from 1 January 2027.

Key dates 

• October 2023: The EU's CBAM entered its transitional phase - introducing reporting obligations but not financial obligations.  
• January 2026: The EU CBAM introduced financial obligations for importers.
• January 2027: The UK CBAM is scheduled to begin. It is expected reporting and financial obligations will be introduced from the outset.

This guide is for UK businesses including manufacturers, exporters, importers, procurement teams and in‑house counsel dealing with goods covered by the EU or upcoming UK CBAM.

What CBAM means for UK businesses

Interaction with domestic carbon pricing schemes

The UK and EU each operate domestic carbon pricing systems called Emissions Trading Schemes (ETS), systems requiring domestic producers to pay for their GHG emissions. The greater the emissions associated with production, the more they are required to pay. CBAMs extend similar pricing requirements for embedded GHG emissions to imported goods, so foreign and domestic producers face similar costs for their GHG emissions.

Implications for UK businesses

• UK producers are already required to pay for emissions associated with manufacturing in the UK under the UK ETS.  
• From January 2026 ,when EU customers buy goods from UK suppliers, they must purchase CBAM certificates equivalent to the carbon price that would have been paid had the goods been produced in the EU, calculated based on the weekly average auction price of an EU ETS allowance (in €/tonne of CO2 emitted).    
• Importantly, EU importers can reduce CBAM charges if a verified carbon price (such as the UK ETS) was already paid in the exporting country of origin. This prevents double charging for emissions and incentivises other countries to adopt their own carbon pricing systems to retain the revenue domestically. UK businesses can help reduce their EU customers' EU CBAM duties by proving that they have already paid for GHG emissions under the UK ETS.  
• UK businesses selling goods from other countries to EU customers will not benefit from reductions in CBAM dutiesunless the country of origin has a verified domestic measure comparable to an ETS. For example, an EU customer buying goods manufactured in India from a UK supplier will have to pay full EU CBAM charges on the import of those goods.  
• From January 2027, UK businesses will have to pay a similar charge on imported goods based on UK carbon prices under the UK CBAM.

EU CBAM transitional phase: October 2023 – December 2025

Between October 2023 to December 2025 EU importers of certain goods (iron and steel, cement, aluminium, fertilisers, electricity, and hydrogen) were required to report quarterly on carbon emissions of imported goods. While EU companies were legally responsible for this reporting, they required emissions data from UK suppliers. UK exporters that invested early in robust emissions tracking are now better placed to comply with the mandatory verification requirements of the final phase.

EU CBAM Final Phase:  what UK businesses must do now  

The EU system is now mandatory, with financial penalties for non-compliance. UK businesses exporting CBAM-covered goods to the EU face immediate obligations, including:  

Authorisation Requirements: Only authorised companies can import CBAM covered goods (Authorised CBAM declarants).  

Mandatory Verification:  The Authorised CBAM declarant must ensure that the total embedded emissions declared in the CBAM declaration are verified by an accredited verifier. If verified data is not provided, EU importers must use default emissions values that are typically much higher and lead to higher CBAM charges for importers – making non-EU producers who fail to provide verified data less competitive.

Financial Obligations: EU importers must purchase CBAM certificates equivalent to the carbon price that would have been paid had the goods been produced in the EU.  

Reporting Obligations: EU importers must now file only one annual CBAM declaration per calendar year, rather than quarterly reports.

What UK businesses should do now

• Confirm whether their EU customers are authorised CBAM declarants.
• Provide verified emissions data to help EU customers comply with mandatory verification requirements.  
• Document their UK carbon pricing payments, so that EU customers can deduct these from their certificate obligations to reduce costs.

UK CBAM:  what to prepare for

The UK will introduce its carbon border tax on 1 January 2027. Under the proposals UK importers must:

• Report emissions annually in 2027, then quarterly from 1 January 2028;
• Calculate emissions using UK-approved methods;
• Pay carbon border tax on imports from countries without equivalent carbon pricing; and
• Claim reductions for verified foreign carbon costs.

EU-UK carbon pricing linkage: a potential game-changer

The UK and EU are formally discussing linking their carbon pricing systems, which could exempt UK-EU trade from carbon border taxes. They aim to conclude talks by their next summit in mid-2026.  

A linkage would:

• grant mutual exemptions from both the EU CBAM and the upcoming UK CBAM; and  
• result in a harmonisation of both jurisdictions’ carbon markets. Importers would not need to purchase CBAM certificates, track embedded emissions for CBAM purposes, or navigate the complex reporting and verification rules.

How we can help

Our Competition, Regulatory and Trade team along with construction, environment and energy specialists is closely tracking the development of EU and UK’s CBAM frameworks.  

If you would like to discuss what these schemes mean for your business or how to comply, get in touch.

Contributor: Jack Hainey

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2026. Specific advice should be sought for specific cases. For more information see our terms & conditions.

‍