UK to implement a CBAM in 2027 to prevent carbon leakage
The UK has confirmed that it will introduce a Carbon Border Adjustment Mechanism (CBAM) starting January 1, 2027, aimed at tackling carbon leakage and supporting its target for net zero emissions by 2050.
This move aligns with the UK’s commitment to reduce emissions by 68 percent by 2030 and by 81 percent by 2035, compared to 1990 levels.
Why CBAM is needed
The UK Emissions Trading Scheme (UK ETS) is reducing allowances by 45 percent between 2023 and 2027, pushing carbon prices higher. Free allowances are guaranteed until 2026, with their future under review. While this accelerates decarbonization, it also increases the risk of industries relocating production abroad, where climate regulations are weaker, a phenomenon known as carbon leakage.
To address this risk, the CBAM will cover emissions-intensive imports such as aluminum, cement, fertilizer, hydrogen, and iron and steel. Importers will pay a carbon price based on embedded emissions, either through verified data or government-set default values. The tax rate will also reflect the domestic carbon price that would have been incurred, had the goods been produced in the UK. The first tax returns and payments are due in May 2028.
Scope and coverage
The CBAM will apply to specific goods identified by UK tariff commodity codes under the Combined Nomenclature (CN), linked to the Harmonized System (HS). While upstream materials such as aluminum sheets and steel bars are included, finished products such as car doors are excluded. Both direct emissions and indirect emissions fall within the scope of the CBAM.
Rate and relief
- CBAM rates will be set quarterly from 2027, mirroring the UK ETS allowance price and Carbon Price Support (CPS).
- Importers may claim carbon price relief if equivalent carbon costs were paid abroad.
- A registration threshold of £50,000 per year ensures small importers are exempt, while still capturing over 99 percent of imported emissions.
Comparison with EU CBAM
While the UK and EU CBAMs share the same core purpose, there are key differences:
| Aspect | UK CBAM | EU CBAM |
|---|---|---|
| Sectors covered | Aluminum, cement, fertilizer, hydrogen, iron & steel. Electricity not included in the UK CBAM due to different carbon leakage risk profile | Aluminum, cement, fertilizer, hydrogen, iron & steel, electricity |
| Implementation timeline | Full obligations start Jan. 1, 2027. No prior reporting period. | Reporting-only period started Oct. 2023. Liabilities apply from 2026. |
| Mechanism | Works like a domestic tax. Importers declare embodied emissions and pay HMRC after each accounting period. | Importers must buy and surrender CBAM certificates equivalent to emissions of imports. |
| Emissions reporting | Based on verified actual emissions data or default global average values (from 2027). | Verified actual emissions data required; default values based on exporting country averages, with adjustments. |
| Verification of emissions | Independent bodies accredited by members of the International Accreditation Forum (IAF). | Independent verifiers accredited under EU accreditation frameworks. |
| Threshold for registration | Only applies if the total value of CBAM imports in a rolling 12-month period meets or exceeds £50,000. | Exemption for importers of less than 50 ton per year of CBAM goods. |
Looking ahead
The UK and EU are working on linking their ETS systems, which could lead to mutual exemptions from CBAM obligations. Future updates will refine emissions methodologies, align with global carbon pricing, and review the role of free allowances in maintaining competitiveness.
European Commission confirms no delay to CBAM
The European Commission has replied to a request for clarification from European steel distribution association EUROMETAL, confirming that the Carbon Border Adjustment Mechanism (CBAM) will proceed as scheduled in January.
“The date of coming into effect of CBAM on 1 January 2026 is EU Law. It can only change with a legal proposal by the European Commission and the agreement of the European Parliament and the European Council. There is no such proposal on the table,” said the EU’s Directorate-General for Taxation and Customs Union.
Rumours pervading the market had increasingly suggested that CBAM’s definitive stage – under which imports become fiscally liable for their associated carbon emissions – could be delayed past its January implementation date due to ongoing procedural uncertainties. Some of McCloskey’s sources previously expected that CBAM could be delayed by as much as a year, though the Commission’s reply confirms the position of the opposite camp – that CBAM is now too ingrained to accommodate further delays.
The European steel supply chain has been relatively harmonious in its support for CBAM in principle as a measure to protect Europe’s decarbonising industries, focussing campaigning on practical refinements to the mechanism such as an extension to downstream products, possible export rebates, and circumvention protections. The European Commission’s public consultation on extending CBAM’s scope ends today, 26 August.
However, as CBAM’s definitive stage looms, market participants have been less enthused about the instrument’s practical implementation, lamenting administrative uncertainties still yet to be clarified by the Commission – most prominently the lack of transparency around operative benchmarks in CBAM’s cost formulas that makes it impossible for importers to assess their actual exposure when purchasing international steel.
McCloskey’s sources, particularly in the trade, have been working with estimated values of around 1.3-1.4t/CO2e for blast-furnace route steel basis historical data and tendencies under the Emissions Trading System (ETS), but the actual values are not expected to be released by the European Commission until later this year, or even early 2026. There is also uncertainty surrounding whether steel produced via the electric-arc furnace route will receive its own benchmark classification, as opposed to a single, unified emissions benchmark for international steel.
The industry has previously described the ongoing implementation of CBAM as a “nightmare by nature,” “insane,” “a fiasco” and, most illustratively “a molotov cocktail for the entire supply chain.”
While steel industry associations like EUROMETAL have been loudly proclaiming the difficulties this lack of transparency presents for European importers, these issues have also been highlighted in the EU legislature. Member of the European Parliament (MEP) Filip Turek submitted written questions to the European Commission in mid-July on what measures were being taken to alleviate threats to competitiveness from CBAM cost uncertainties and the non-publication of CBAM’s benchmark values, suggesting a potential dependency between updates to benchmark values for CBAM and those under the ETS, the latter of which Turek does not expect until Spring 2026.
The European Commission commits to replying to written questions within six weeks, which by McCloskey’s estimations sets a 27 August deadline for this potential further clarification.
Benjamin Steven Journalist Steel
Germany’s Dillinger to restart BF No. 4
German heavy plate producer Dillinger will restart its temporarily idled blast furnace (BF) No. 4 at its Rogesa Roheisengesellschaft Saar plant on 30 August, the steelmaker said on 28 August.
The furnace was shut down in May this year for planned repairs.
The stoppage had no impact on the heavy plate market due to seasonally weak demand during summer. In addition, the steelmaker stockpiled slab before the furnace relining to avoid supply disruptions.
Since the BF No.4 stoppage, Rogesa continued to operate BF No. 5 to supply pig iron to Dillinger subsidiaries.
In Northwest Europe, offers for s235-grade plate from integrated mills were reported in a range of EUR670-680/t ex-works. German steelmakers have been focused on deliveries to projects and to end-users under long-term agreements, which has supported spot prices.
Maria Tanatar Associate Director, Steel and Green Steel
