New Developments on the UK CBAM

UK CBAM launches in 2027 – but without indirect emissions

The UK government has officially confirmed in its 2025 Budget that, when the national Carbon Border Adjustment Mechanism is introduced on 1 January 2027, indirect emissions will initially not be taken into account. This means the United Kingdom is choosing a similar path to the EU CBAM, which does include both direct and indirect emissions in its reporting framework, but for most sectors only charges costs on direct emissions. This is particularly important for imports of energy-intensive goods such as steel, aluminium, cement and fertilisers. Indirect emissions, for example from electricity consumption in the production process, will only be brought into scope from 2029 at the earliest. This step is explicitly aligned with the Energy-Intensive Industries Compensation Scheme, which shields domestic industries from high energy prices.

Consultation on the inclusion of fuels announced

The government is also planning a separate consultation on the possible extension of CBAM to the area of mineral oil products. This particularly concerns refinery products, whose strategic importance for national energy security is emphasised. A so-called call for evidence is to be published shortly. Companies that import or distribute fuels should start to familiarise themselves early with potential reporting obligations and price impacts, even though no legal extension has yet been adopted. A parallel can also be seen here with the EU CBAM: while the European Commission has not yet decided on an extension within existing sectors, it already highlighted refineries as an industrial sector that is next in line for inclusion at the beginning of the year. However, such a step would only make sense once EU ETS 2 covers European emissions in this area. The start of the second emissions trading system for buildings and transport is currently set to be postponed to 2028.

Technical adjustments provide greater legal certainty

In response to the public consultation held in April 2025, the government has introduced several clarifying amendments to the CBAM legislation. The calculation of free allocations will in future be based on sector-specific average values. This simplifies implementation and reduces differences between individual installations. Temporary imports have been explicitly excluded from CBAM obligations, which is particularly relevant for re-exports or short-term uses. In addition, the reduction of the CO₂ price payable has been adjusted for certain constellations. For example, charges already paid under other carbon border adjustment mechanisms can be deducted. Companies that have mistakenly paid excessive charges will now benefit from a legally established deadlines regime: refund claims can be submitted within three years. These changes increase procedural certainty and provide affected companies with a clearer framework.

Negotiations between the United Kingdom and the EU ongoing

In parallel with national implementation, talks between London and Brussels on possible mutual recognition of the CO₂ pricing systems are continuing. According to research by the Guardian, both sides are examining a temporary agreement that could exempt UK exporters from paying the EU CBAM levy. Such an agreement would require the UK emissions trading system to be recognised as equivalent in terms of climate ambition and CO₂ price. For exporters of products such as iron, steel, cement or aluminium to the EU, the outcome of these negotiations is of immediate importance. If no agreement is reached, EU CBAM will continue to apply to goods originating in the UK.

Concrete implications for compliance officers

Despite the deferral of indirect emissions, affected companies should not play for time. From January 2027, imports of the relevant product groups into the United Kingdom will be subject to the obligation to capture and report direct emissions. The now clarified legal provisions already require adjustments to internal processes, particularly in data collection, the assessment of temporary goods movements and the allocation logic. At the same time, exporters to the EU must prepare for the application of the European CBAM. Without a formal agreement, there is a risk of double pricing. Cross-border alignment of CO₂ data and reporting structures will be essential.

Support with implementation

If you need support with implementing CBAM requirements or face challenges in communicating with suppliers or obtaining emissions data, feel free to contact me directly at helge@kolum.earth.