In October 2023, the European Union introduced the transitional period for the Carbon Border Adjustment Mechanism (CBAM). The new rule affects UK businesses trading with the bloc. Here’s what your business needs to know…

What is CBAM?

CBAM intends to apply charges for carbon emitted during the production of products outside of the EU, representing a tax on imported goods that accounts for the carbon cost of producing them. It aims to put a fair price on the emissions created during the production of carbon intensive goods and encourage cleaner industrial production in non-EU countries.

CBAM is a part of the EU’s action on industrial decarbonisation to tackle climate change, meet net zero targets and reduce the risk of carbon leakage caused by the differing levels of decarbonisation effort across the world.

When will CBAM take effect?

CBAM is being gradually introduced in 2 phases between 2023 through to 2026. The first phase will require reporting for six sectors which are considered the most carbon intensive: cement, aluminium, fertiliser, iron and steel, electricity, and hydrogen. Phase two will be introduced in 2026 and will include tariff charges and certification.

The EU’s CBAM is expected to be fully in place as of 2026. The changes could affect exporters but also other businesses within the supply chain.

What does this mean for your business?

During the transitional period (01/10/2023 to 31/12/2025), businesses will need to:

• Submit CBAM reports on a quarterly basis: Importers of goods to the EU will have to report greenhouse gas emissions (direct and indirect emissions) during a given quarter of a calendar year, without making any financial payments or adjustments. The report shall be submitted no later than one month after the end of that quarter.
• Register in the CBAM Transitional Registry: Developed by the EU Commission to assist traders in making and submitting the CBAM report, this registry will also allow communication between the Commission, the competent authorities, the national customs authorities and traders. Access and registration to the registry should be requested through the CBAM Portal (TAXUD).

Is there a UK equivalent of CBAM?

The UK Government is planning to introduce its own version of CBAM in 2027. In the UK’s version of the mechanism, the liability applied by the CBAM will depend on the greenhouse gas emissions intensity of the imported good, the gap between the carbon price applied in the country of origin and the carbon price that would have been applied had the good been produced in the UK.

Like the EU, the UK CBAM will apply initially to emissions intensive industries including those producing aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel. It will be applied to Scope 1, Scope 2 and select precursor product emissions. The liability will lie directly with the goods importer within the scope of the UK CBAM and the system will not involve the purchase or trading of emissions certificates.

At Chambers Wales South East, South West and Mid, our trade team keep up to date with the latest developments, policies and announcements affecting importers and exporters to help businesses keep goods moving and ensure compliance at every stage. The Chamber teamed up with International Trade Matters to deliver a webinar on CBAM on 12 February as part of a series of events to proactively help members, partners and businesses in Wales.