UK CBAM: The House of Commons Approves Carbon Price Relief, an ETS Agreement Moves Closer

The House of Commons approves the pricing regulations

On 14 October 2026, the UK House of Commons approved SI 2026/809. The instrument sets out how the UK CBAM rate is calculated and under which conditions importers may deduct a carbon price paid in the country of production. It applies from 1 January 2027, together with the UK CBAM itself. It is particularly relevant for EU manufacturers with UK customers, because the EU Emissions Trading System is one of the recognised schemes.

The UK CBAM rate is known before each quarter

UK importers do not buy certificates. They pay a tax at a rate that HM Treasury publishes in advance for each sector and each quarter. The starting point is the average of all auction clearing prices in the UK Emissions Trading Scheme (UK ETS) in the preceding quarter. This figure is reduced by the share of free allocation in the relevant sector. The reduction factor is set by reference to the EU free allocation rules as they continue to apply in the United Kingdom.

For purchasing and pricing, the rate per tonne is therefore known before a quarter begins. The first rate, for the first quarter of 2027, will be derived from the auctions held in the current fourth quarter of 2026.

The EU ETS price paid can reduce the UK liability

Carbon Price Relief is the UK counterpart to the deduction of carbon prices paid in third countries under the EU CBAM. An importer can claim it where the good was produced in an installation covered by a qualifying carbon pricing scheme. The scheme must be run by a public authority, be mandatory for the installations concerned, impose a cost on emissions and make its rules and prices publicly available. HMRC maintains a list of currently 16 schemes that meet these criteria, including the EU ETS and the Swiss and Chinese schemes.

Relief requires an HMRC carbon pricing verification form for each good. It must be completed by a verifier who has checked the installation data. The verifier must be independent of the installation, the importer and the bodies running the scheme, and its accreditation body must be a full member of the Global Accreditation Cooperation. The importer then calculates the amount of relief itself.

Free allocation does not count

What matters is the effective carbon price of the producing installation. Under HMRC's guidance, total emissions from one of the two calendar years before the year of import are used, so 2025 or 2026 for imports in 2027. Only emissions for which a price was actually paid enter the calculation. Free allowances count as zero, and compensation received is deducted. The resulting price per tonne is multiplied by the embedded emissions of the good that are covered by the scheme and converted into sterling at the HMRC rate. Relief is capped at the UK CBAM liability.

For EU manufacturers, the share of free allocation therefore determines what the relief is worth. An installation that covers most of its emissions with free allowances reaches only a low effective price. One that buys most of its allowances can reduce its customers' UK liability considerably, especially since the EU price is currently above the UK price. On 7 October, the UK December contract reached the equivalent of around EUR 74, while the EU contract had settled at EUR 84.78 the day before.

What manufacturers should provide to UK customers

The importer must keep the completed form, evidence of the scheme's pricing elements and its own calculation for six years. It can only obtain the form through its supply chain. EU manufacturers should therefore check whether their EU ETS verifier meets the UK requirements and can issue the form for 2025 or 2026.

Together with the verification report or the good-specific verification summary under the UK emissions regulations, which we covered in Issue 111, this creates a data package that UK customers are likely to request for each good from 2027. Supply contracts should already provide for both documents to be passed on.

The summit on 20 November and the question of exemption

On 12 October, Prime Minister Andy Burnham confirmed in the House of Commons that the EU-UK summit will take place in Brussels on 20 November. According to him, a deal on emissions trading is on the table. Reportedly, the link between the two systems has already been negotiated. This has not been officially confirmed. The link is also said to be part of a package with a youth mobility agreement and an agri-food agreement.

An exemption from the other side's CBAM would require further legal acts on both sides after an agreement. In the United Kingdom, section 156 of the Finance Act 2026 allows HM Treasury to exclude goods from countries with a linked emissions trading scheme by regulations. In the EU, the United Kingdom would have to be added to Annex III of the CBAM Regulation by delegated act, on the basis of an agreement fully linking the two systems under Article 2(6). None of these steps has been taken so far. For deliveries from January, Carbon Price Relief therefore remains the instrument for reducing the UK burden.

Outlook

HMRC will explain Carbon Price Relief in a webinar on 26 October. The summit on 20 November will show whether there is a signed ETS agreement and a timetable for mutual exemption. Until then, EU manufacturers with UK customers should determine their share of free allocation for 2025 and 2026 and check with their verifier whether it can issue the UK form.

Support

If you would like to understand how Carbon Price Relief affects your deliveries to the United Kingdom, what effective carbon price your installations achieve and which documents your UK customers will need from you from 2027, please get in touch at helge@kolum.earth.