UK CBAM Draft Legislation: Carbon Pricing for Imports from 2027

The United Kingdom publishes draft legislation for its owncarbon border adjustment mechanism

The British government has confirmed the introduction of a national Carbon Border Adjustment Mechanism. The so-called CBAM will apply from 1 January 2027 and is legally anchored in the current draft of the Finance Bill 2025–26. This makes the United Kingdom the second major economic area after the European Union to impose a carbon price on imports of emissions-intensive products. The aim is to ensure regulatory equal treatment between domestic manufacturers and foreign competitors and to promote climate-friendly trade. The decision follows a multi-stage consultation process and now provides clarity for companies trading with the UK for the first time. Although the law has not yet been formally adopted, the political direction is clear: CO₂ emissions will also be priced in cross-border goods movements.

Affected sectors and scope

The UK CBAM will initially apply to a selected group of emissions-intensive sectors. These include aluminium, cement, fertilisers, hydrogen, and iron and steel. The selection reflects the sectors that both generate high emissions and face strong international competition. In this respect, the United Kingdom closely follows the EU model. A key difference from the EU lies in the treatment of electricity. While electricity imports are covered by the EU CBAM, they are excluded from the British mechanism for the time being. This may be related to the UK’s lower level of cross-border grid integration and is likely intended to simplify regulation.

Emission data and phased introduction

Companies importing CBAM-relevant goods into the United Kingdom must register and submit emission reports if they exceed certain thresholds. Covered emissions include direct emissions arising during the manufacturing of the products, as well as emissions from precursors such as clinker in cement or pig iron in steel. Indirect emissions, i.e. emissions from electricity or energy use during production, will not be taken into account initially. They are expected to be included from 2029 at the earliest. This gives companies a transition period to adapt their data structures and systematically integrate external suppliers. The first reporting period covers the calendar year 2027. The corresponding submissions must be filed by May 2028. From 2028 onward, quarterly reporting will be required. This phased transition allows companies to prepare in a predictable manner.

Financial threshold protects smaller importers

A central feature of the UK CBAM is the introduction of a financial threshold for reporting obligations. Companies whose annual imports of affected goods remain below fifty thousand pounds are exempt from both registration and reporting. This threshold-based model clearly differs from the EU mechanism, which only exempts individual small consignments. The UK model provides administrative clarity for smaller market participants but also carries the risk of targeted circumvention strategies. Whether this financial threshold remains effective in the long term or requires adjustment will largely depend on companies’ import behaviour. Foreign carbon pricing can be credited The UK CBAM allows CO₂ prices already paid in the country of origin to be credited against the payable levy. This requires proof of an equivalent carbon pricing system. The United Kingdom therefore recognises the potential existence of other national CO₂ regimes, but ties creditability to a rigorous assessment. Companies must demonstrate that a genuinely comparable price has been paid and that the respective system meets defined standards. This mechanism could play a central role in future UK trade policy. At the same time, it creates an incentive for third countries to develop their own carbon pricing systems that meet international comparability requirements.

Conclusion

With the UK CBAM, another border adjustment system is emerging that systematically links climate protection and trade. Although the structure closely mirrors the EU model, the United Kingdom introduces its own priorities in the design of thresholds and the phased inclusion of indirect emissions. The transition periods provide companies with time, but it is clear that the effort required for data collection and compliance will increase significantly. Companies exporting CBAM-relevant products to the United Kingdom or operating along emissions-intensive supply chains should begin preparing for the new requirements early. The ability to collect emission data transparently and reliably will soon become a decisive competitive factor. If you need support with strategic implementation, regulatory questions or building efficient reporting processes, feel free to contact me directly at helge@kolum.earth.