Borders of Smoke and Steel: The UK CBAM Consultation Response

In a world where borders are often seen as barriers, greenhouse gases remain unconfined, drifting across seas and skies, untethered to nations or geographies. The United Kingdom is now primed to erect a new type of border: motivated not by exclusion, but by accountability. As we have written in previous articles, the UK Carbon Border Adjustment Mechanism (CBAM) strives to place identical carbon prices on imported products as we impose on domestically manufactured products, imposing responsibility across borders.

Revised Coverage Omits Glass and Ceramics 

The UK government’s 30 October 2024 UK CBAM policy design consultation response signals another significant stride in the country’s climate strategy. Based on stakeholder responses, and further consideration of the available data and science, the new Labour government has now reconsidered the UK CBAM’s sectoral coverage. Notably, it confirms that the mechanism will not include glass and ceramic products from the 1 January 2027 start date, despite their inclusion in earlier proposals. The government determined that these products’ comparatively lower emissions intensity, lower exposure to carbon leakage risks, and complexity of accurately accounting for emissions (compared with other sectors) justifies a delay. On this basis, the sectoral coverage of the UK CBAM from 2027 will encompass imported aluminium, cement, fertiliser, hydrogen, iron, and steel products. This measured approach offers a pragmatic starting point for the UK CBAM, while allowing for future expansions as data quality and emissions monitoring capabilities improve.

Refining MRV Options

The government intends to proceed with its initial proposals to price direct and indirect emissions (including precursor emissions) through the UK CBAM. Covering these emissions will ensure that the mechanism accurately prices embodied emissions in imported products on a comparable basis to UK-produced goods, which are subject to both the UK Emissions Trading Scheme (UK ETS) and Carbon Price Support (CPS). However, the government acknowledges that importers will require further detail on the specific processes included under this regime and will thus continue developing robust monitoring, reporting and verification (MRV) methodologies for this purpose.  

The UK CBAM design enables two potential pathways for calculating imported products’ embedded emissions. Importers may use either actual emissions data or apply the government’s standardised default values. The option to apply default values recognises the challenges (and uncertain cost implications) of sourcing precise emissions data from complex supply chains. The government confirms that it will proceed with a single default value set at an appropriate level of granularity to reflect variances in emissions intensity for each product type. For importers, particularly those relying on international suppliers, this may compel either investments in MRV, or careful evaluation of whether to apply the government’s default values (which may reflect a higher emissions cost to account for difficulties in verifying complex supply chain emissions).

Clarifying UK CBAM Rate Adjustments

A defining feature of the UK CBAM is its ‘UK CBAM Rate’, which reflects the effective carbon price in the UK (as determined by the UK ETS, CPS, and free allowance allocations) for each tonne of an imported product’s embodied emissions. The government continues to consider options for adjusting the UK CBAM Rate to reflect the allocation of free allowances. By revising the UK CBAM Rate on a quarterly basis, the government also intends to balance the need to ensure that the UK CBAM Rate remains dynamic and aligned with the UK ETS market against the need to minimise the compliance burden on overseas installations.

To avoid carbon pricing duplication, the UK CBAM includes a provision to reduce liability for products subject to explicit carbon pricing in their countries of origin. However, the government now confirms that only explicit carbon pricing mechanisms—such as carbon taxes or ETSs—will qualify for this deduction. For importers, this means that products sourced from jurisdictions without equivalent carbon pricing mechanisms may face higher costs under the CBAM, while those subject to recognised carbon pricing mechanisms may thus be entitled to UK CBAM liability reductions. Importers of products subject to multiple carbon prices may thus be entitled to offset the total evidenced carbon price from their UK CBAM liabilities.

Tax Point Confirmation and Reimportation Exceptions

The UK CBAM’s point of taxation arises on import into free circulation within the UK, which is consistent with existing UK customs procedures. CBAM liabilities for covered products exported under the ‘outward processing procedure’, and re-imported into the UK, will be based on processing emissions occurring outside of the UK. Conversely, no liabilities will arise for CBAM-covered products originating outside of the UK but re-imported under the returned goods relief, provided that the necessary conditions for applying the relief are satisfied. This may include, for example, steel products returned to the UK from an overseas market within three years of export provided that they re-enter the UK in an unaltered state. This policy aligns with the EU CBAM’s parameters. It also reflects the UK government’s objective to target only imported products manufactured or altered abroad, whilst not penalising products that merely transit through, or return to, the UK.

Liable persons are those responsible for the products when they are either released into free circulation or, where the products are not subject to customs controls, the person on whose behalf they are moved into the UK. Those persons must file quarterly returns—mirroring the approach taken for VAT—starting from 30 May 2028 and maintain detailed records of emissions data (or default values) applied to each imported product. During the UK CBAM’s initial stages, individuals importing CBAM products for personal use will not be liable under the mechanism. The government has also decided to increase the threshold for CBAM products to £50,000 over a 12-month rolling period, which it estimates will remove over 80% of potentially liable businesses while still covering 99% of imported emissions. Given the possible operational complexities in implementing the UK CBAM, HMRC pledges to work with liable persons—particularly during the early stages of the mechanism—to facilitate compliance and reduce the risk of penalties.

Strategic Comparison with the EU CBAM

The UK CBAM shares the EU CBAM’s foundational architecture. Yet, important differences in coverage and operational designs reflect each jurisdiction’s distinct sectoral impacts, administrative feasibility, and political-economic objectives. The UK CBAM’s initial sectoral focus is narrower—excluding imported electricity—which underscores the UK’s unique energy market and electricity pricing regime. In addition, the UK’s full implementation will commence in January 2027, as opposed to the EU CBAM’s phased implementation (the reporting requirements of which commenced on 1 October 2023). When compared to the EU’s annual rate-setting process, the UK CBAM Rate’s quarterly revisions may also confer enhanced stability, but less precise alignment with real-time UK allowance prices. Thresholds also diverge, with EU importers required to comply with EU CBAM reporting requirements only for consignment values of CBAM-covered imports exceeding €150 (as opposed to the UK CBAM’s £50,000 threshold over a 12-month rolling period). Fundamentally, these contrasting policy parameters demonstrate each jurisdiction’s endeavours to balance national priorities with shared accountability for global decarbonisation. 

Balancing Fairness and Accountability

As the UK CBAM takes shape, it reflects a vision of climate accountability that transcends borders, compelling heightened accountability from businesses and governments alike. Greenhouse gases, propelled by winds, are indifferent to the origins of the industries that released them; they are part of a shared biosphere, and a shared future. CBAM policies also flow across borders, carrying messages of shared duties through a world where emissions mean more than pricing. 

Nevertheless, despite laudable ambitions to level the playing field for carbon accountability, CBAMs may cast the heaviest burdens on those with least capacity to bear them and may undermine the growth of CBAM-covered sectors in least developing countries, thereby diminishing opportunities for export-led industry development (and, ultimately, growth in sustainable development).  This raises a fundamental question: how do we balance urgent demands to address carbon leakage, while recognising historic inequalities? Ultimately, as each country’s emissions may affect us all, CBAMs are likely to play a necessary role to ensure no one is left behind.