UK CBAM: 5 key insights from the draft legislation

In late 2024, the UK Government published draft legislation for its own Carbon Border Adjustment Mechanism, set to take effect on 1 January 2027. While the UK CBAM shares the same fundamental objective as the EU's — preventing carbon leakage by applying a carbon price to imported goods — the draft legislation reveals several important differences that businesses trading with the UK need to understand.

Here are five key insights from the draft. First, the UK CBAM will cover a narrower set of sectors initially, focusing on iron and steel, aluminium, cement, ceramics, glass, and hydrogen, but notably excluding fertilisers and electricity, which are covered by the EU CBAM. Second, the UK mechanism will use a different pricing basis, linked to the UK Emissions Trading Scheme (UK ETS) carbon price rather than the EU ETS price, meaning the per-tonne cost of compliance could diverge significantly between the two regimes. Third, the UK proposes a simpler calculation methodology for embedded emissions, with fewer product categories and a less granular approach to complex goods — a deliberate design choice to reduce the compliance burden on importers. Fourth, the UK CBAM will not have a transitional reporting-only period equivalent to the EU's; instead, the financial obligation will begin from day one, although simplified default values will be available during the first two years. Fifth, the draft legislation leaves open how the UK will recognise carbon prices already paid in the country of origin, a critical detail for businesses importing goods from jurisdictions with their own carbon pricing schemes.

For businesses that import into both the EU and the UK, the existence of two parallel but distinct CBAMs creates a dual compliance challenge. Supply chain data collection processes, emissions calculation methodologies, and reporting formats will differ between the two regimes. Organisations that have invested in EU CBAM readiness will have a head start, but should not assume that their existing processes will transfer directly to the UK system without adaptation.

CBAMBOO is monitoring the UK CBAM legislative process closely and will support UK CBAM compliance on the platform as the final rules are confirmed. Businesses that import into the UK should begin assessing their exposure now, identifying which of their goods fall within scope and which suppliers will need to provide emissions data. Early preparation will be particularly important given the absence of a reporting-only transitional period.