CBAM update following the Autumn 2025 Budget
Following the Budget 2025, the Finance Bill 2025/26 was introduced and will include the final CBAM primary legislation.
The Government announced that indirect emissions associated with the production of CBAM goods will not be included in scope of CBAM, at its implementation on 1 January 2027. Their inclusion will instead be delayed until 2029 at the earliest. This is to reflect continued support for the Energy Intensive Industries (EII) Compensation Scheme.
The Government recognises that refineries play a role in energy security and is also considering the feasibility and impacts of including refined products in CBAM in the future.
Changes have now been made to the legislation following the April 2025 consultation, including:
- Phase out of Free Allowances under the UK Emissions Trading Scheme, allowing for an annual adjustment in the CBAM rate calculation
- Carbon price relief extended to enable recognition of carbon prices incurred under carbon border adjustment mechanisms
- Inclusion of an exemption for emissions embodied in UK-produced precursor goods, imported into the UK as part of a complex CBAM good, preventing a carbon price being paid twice on the same good, whilst reducing administrative burdens for businesses
- Inclusion of an exemption for emissions embodied in CBAM goods under temporary admission in the UK, with full relief from customs duties, to ensure CBAM only applies where goods enter the UK market
- Time limit for repayment claims set at three years, when an overpayment of CBAM error has been made
- Removal of the group treatment provision
The Government will continue to work closely with stakeholders, in preparation for the implementation of CBAM, from 1 January 2027.
Summary
As an update to the article dated 8 December 2023, the UK is planning to introduce its own version of the CBAM, which has some differences to the EU model and so will affect more businesses, where it widens the impact on the supply chain.
In December 2023, the government published a factsheet summarising the UK CBAM, confirming that it intends to implement in the UK by January 2027, the design and delivery being subject to a consultation in March 2024, which closed on 13 June 2024. We await the outcome.
In summary, the UK CBAM tariff will depend on the emissions intensity of the goods and the difference between the carbon price applied in the country of origin and the carbon price that would have been applied, had it been produced in the UK. The liability will be with the importer of the product.
Proposal
The UK proposals are similar to the EU CBAM, placing a carbon price on emissions intensive industrial goods imported, such as aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel. The final list of products in scope will be the subject of the consultation, which will include a list of specific commodity codes included within scope.
The UK CBAM liability will lie directly with the importer of imported products within scope of the UK CBAM, on the basis of emissions embodied in imported goods. This system will not involve the purchase or trading of emissions certificates.
Emissions scope categories
There are three emissions scope categories:
Scope 1: emissions related to the activities directly owned, or controlled, by an organisation. These emissions are directly controlled by those producing the product, for example, as part of a manufacturing process
Scope 2: emissions related to consumption of purchased electricity, heat, steam and cooling. Scope 2 is for indirect emissions, not directly controlled by manufacturers
Scope 3: related to other emissions released as a consequence of an organisation’s actions, occurring at sources not owned or controlled by the organisation, for example, the transportation by air of finished products, or the production of precursor goods from another manufacturer in the supply chain
The UK CBAM will apply to Scope 1, Scope 2 and select precursor product emissions, to compare with the UK Emissions Trading Scheme (ETS).
The UK CBAM will apply an effective carbon price to imports, which will be significantly lower than the UK ETS price, to reflect domestic free allowances and will work alongside the UK ETS, including free allowances, so that imported products are subject to a carbon price comparable to that incurred by UK production, mitigating the risk of carbon leakage.
Differences
There are, however, some differences to the EU CBAM:
- The UK CBAM is effectively a tax and will be administered by HMRC, with returns and payments due quarterly, whereas the EU CBAM will operate through the purchase of CBAM Certificates to settle charges, on an annual basis
- The UK CBAM’s proposed de minimis is much higher than the EU de minimis of €150 per consignment, being £10,000 per rolling 12 month period
- The UK CBAM will propose default values to calculate and report emissions, whereas the EU CBAM requires emissions to be calculated by a specific methodology
- The UK and EU CBAMs allow a credit for carbon prices already paid on the goods
- Once the design and delivery is decided following consultation, which will include the precise list of products in scope, we will update further.
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