What is CBAM?
A carbon border adjustment mechanism puts a carbon price on imports. The charge is based on the greenhouse gases released when the goods were produced, measured in tonnes of CO2 equivalent (tCO2e). EU law calls these embedded emissions; UK law calls them embodied emissions. A tonne of steel made with high emissions costs more to import than a tonne made with low emissions.
The European Commission describes the EU CBAM as its tool to address carbon leakage by making the price of imports reflect their embedded carbon emissions. The UK government says its CBAM will make sure carbon-intensive products from overseas face a carbon price comparable to the one UK manufacturers pay.
The importer pays, not the overseas producer. But the producer's emissions data, or the default values used when that data is missing, decides how much, so CBAM reaches right along the supply chain.
Two schemes matter for UK businesses, and they are separate. The EU CBAM applies to goods entering the EU, including goods from the UK. The UK CBAM applies to goods entering the UK, including goods from the EU. Each has its own goods list, threshold, price and deadlines.
Is CBAM a tax?
In the UK, yes: the UK CBAM is a tax charged under the Finance Act 2026 and paid to HMRC on a return. The EU CBAM works through certificates that importers buy and surrender, priced in line with the EU Emissions Trading System. Both are often described as a carbon border tax.
Why CBAM exists: carbon leakage
Carbon leakage is the risk that a carbon price at home simply pushes production, and its emissions, abroad. The European Commission defines it as the transfer of emissions from one country to another when companies move production to countries with weaker emission rules because of strict climate policies.
The UK government's definition is similar: the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing.
Leakage can happen without any factory moving. The Commission says leakage also occurs when EU-produced goods are replaced by carbon-intensive imports. Either way, emissions are displaced rather than cut.
Until now the main defence has been free allowances. In the EU ETS, installations in sectors at significant risk of carbon leakage receive some allowances free. The 2021 to 2030 carbon leakage list covers 63 sectors and subsectors, about 94% of industrial emissions in the EU ETS.
CBAM takes over that job for the goods it covers. Under current EU law, free allocation for CBAM goods is phased out between 2026 and 2034. The UK is doing the same: free allowances for UK CBAM sectors start to fall in 2027, when the UK CBAM begins.
The EU CBAM: how it works
The EU CBAM is set up by Regulation (EU) 2023/956 of 10 May 2023. It applied from 1 October 2023, but the transitional period to 31 December 2025 was reporting only. The definitive period, with a real financial obligation, began on 1 January 2026.
- Goods: cement, iron and steel, aluminium, fertilisers, hydrogen and electricity, listed by CN code in Annex I of the regulation.
- Who: importers above the 50-tonne threshold, and all importers of hydrogen or electricity, must be authorised CBAM declarants before importing. An importer not established in the EU must use an indirect customs representative, who holds the authorisation.
- What: one CBAM certificate for each tonne of CO2 equivalent embedded in the goods, reduced to reflect the free EU ETS allowances that EU producers still receive.
- Data: actual, verified emissions from the producer, or default values set by the Commission. Defaults carry a mark-up of 10% in 2026, 20% in 2027 and 30% from 2028 for most goods, and 1% for fertilisers.
- Relief: a deduction for a carbon price effectively paid in the country of production, net of any rebate or compensation.
- Deadline: the annual declaration and certificate surrender are due by 30 September for the previous year. The first, for 2026 imports, is due by 30 September 2027.
Goods originating in Iceland, Liechtenstein, Norway and Switzerland are outside the regulation. The UK is not on that list. Our EU CBAM guide covers authorisation, default values and penalties in more detail.
The 2025 CBAM simplification (the Omnibus changes)
On 26 February 2025 the European Commission proposed simplifying CBAM as part of its 'Omnibus' simplification packages. It said a new 50-tonne threshold would exempt around 90% of importers while keeping around 99% of emissions in scope.
The changes became Regulation (EU) 2025/2083 of 8 October 2025, published on 17 October 2025 and in force from 20 October 2025.
| Rule | Original regulation | After the 2025 simplification |
|---|---|---|
| Small importer exemption | Goods worth up to €150 per consignment (goods of negligible value) | Importers with 50 tonnes or less of CBAM goods by net mass in a calendar year are exempt; does not apply to hydrogen or electricity |
| Annual declaration and surrender | By 31 May | By 30 September, first due 30 September 2027 |
| Certificate sales | From 1 January 2026 | From 1 February 2027 |
| Price for 2026 imports | Weekly average | Quarterly average for the quarter of import |
| Certificates held at each quarter end | At least 80% of embedded emissions | At least 50%, from 2027 |
Importers that applied for authorisation by 31 March 2026 could keep importing while their application was decided. The 50 tonnes is a combined total across all CBAM goods for each importer, and anyone who goes over it is caught for everything imported that year.
The regulation requires the Commission to check each year that the threshold exempts no more than 1% of embedded emissions, and to recalculate it where needed. The Commission's assessment for 1 April 2025 to 31 March 2026 found it would exempt 0.87%.
The UK CBAM: a tax from 1 January 2027
The UK CBAM is created by Part 5 of the Finance Act 2026, which received Royal Assent on 18 March 2026. It applies to goods imported into the UK on or after 1 January 2027 and is run by HMRC. HMRC estimates that about 10,000 businesses import CBAM goods.
- Goods: aluminium, cement, fertilisers, hydrogen, and iron and steel. Electricity is not included. Glass and ceramics, proposed in December 2023, will not be in scope from 2027.
- Charge: the sector's CBAM rate multiplied by the tonnes of CO2 equivalent embodied in the goods.
- Rate: set by HM Treasury for each sector every quarter, starting from the mean UK ETS auction clearing price in the previous quarter and reduced to reflect free allowances given to UK producers.
- Emissions: direct emissions only, including those embodied in relevant precursor goods. Indirect emissions are delayed until 2029 at the earliest.
- Threshold: you must register if your CBAM imports reach £50,000 over the previous 12 months, or you expect them to within the next 30 days.
- Relief: Carbon Price Relief for a carbon price paid under a qualifying overseas scheme.
- Deadlines: register by 31 January 2028 if you become liable during 2027. The first return and payment, covering all of 2027, are due by 31 May 2028.
Our UK CBAM guide explains registration, records and penalties, and UK CBAM rates sets out the rate formula step by step.
EU CBAM vs UK CBAM: side by side
| EU CBAM | UK CBAM | |
|---|---|---|
| Legal basis | Regulation (EU) 2023/956, amended by Regulation (EU) 2025/2083 | Part 5 of the Finance Act 2026, plus regulations made in 2026 |
| Cost applies to imports from | 1 January 2026 (reporting only from 1 October 2023) | 1 January 2027 |
| Sectors | Cement, iron and steel, aluminium, fertilisers, hydrogen and electricity | Aluminium, cement, fertilisers, hydrogen, and iron and steel; no electricity |
| Who is liable | Authorised CBAM declarant: the importer or its indirect customs representative | The importer: the person in whose name, or on whose behalf, the customs declaration is made |
| Threshold | More than 50 tonnes net mass a year per importer; all hydrogen and electricity imports covered | £50,000 of CBAM imports by customs value over the last 12 months, or expected in the next 30 days |
| How it is paid | Buy CBAM certificates and surrender them with an annual declaration | Tax paid to HMRC with a return |
| Price | Average of EU ETS auction prices: quarterly for 2026 imports, weekly from 2027 | Sector rate set by HM Treasury each quarter from UK ETS auction prices, reduced for free allocation |
| Emissions counted | Direct emissions; indirect emissions too for cement, fertilisers and agglomerated iron ore | Direct emissions only; indirect emissions not before 2029 |
| Overseas carbon price | Deduction for a carbon price effectively paid, net of rebates | Carbon Price Relief under a qualifying scheme |
| First deadline | Declaration and certificates by 30 September 2027, for 2026 imports | Register by 31 January 2028 if liable in 2027; first return and payment by 31 May 2028 |
Both schemes cover carbon dioxide, plus nitrous oxide for nitric acid and some fertilisers and perfluorocarbons for aluminium. Both already include some finished steel goods, such as screws, bolts and structures.
What CBAM means for UK exporters
If you sell steel, aluminium, cement, fertilisers or hydrogen into the EU, the EU CBAM has applied to your goods since 1 January 2026, unless your customer's CBAM imports stay within the 50-tonne annual exemption, which does not cover hydrogen. Your EU customer, or its indirect customs representative, pays. But the bill depends on your data, so expect requests for:
- Specific embedded emissions per tonne of each product, calculated using the EU CBAM methods.
- Verification of that data by an accredited verifier, so your customer can avoid marked-up default values.
- Evidence of any carbon price effectively paid, such as UK ETS costs, net of any rebate or other compensation.
- Installation details, which can also be held in the EU CBAM Registry if you register as an operator.
The UK government's explainer for the May 2025 UK-EU summit said UK industry stood to be hit by the EU CBAM on around £7bn of trade. It said this could have led to UK exporters paying up to £800m into the EU budget by 2030.
Linking the UK and EU emissions trading systems would change this. The Commission's negotiating recommendation says that once a linking agreement is in force, the EU CBAM would not apply to UK-origin goods, and vice versa. Press reports on 7 October 2026 said a deal had been reached, but neither government had confirmed it as of 10 October 2026. See our UK-EU ETS linking guide.
What CBAM means for UK importers
From 1 January 2027, the UK CBAM applies to CBAM goods imported into any part of the UK, including Northern Ireland. It covers goods from every country, including the EU: HMRC says no jurisdiction is currently exempt.
A carbon price already paid abroad can reduce the bill. HMRC's provisional list of qualifying carbon pricing schemes, published on 27 August 2026, includes the EU ETS.
- Check your commodity codes against the UK CBAM goods list.
- Track the customs value of your CBAM imports each month from 1 January 2027. Imports before that date do not count towards the threshold.
- Ask overseas suppliers for verified emissions data. Without it you must use the government's default values, which HMRC published on 16 October 2026. A return filed using default values cannot later be amended to use actual data.
- Keep records for 6 years, even before HMRC's registration service opens.
- Register by 31 January 2028 if you become liable during 2027, and file your first return and payment by 31 May 2028.
The £50,000 threshold is not an allowance
From the date you become registrable, CBAM is charged on all the CBAM goods you import, not just the value above £50,000. Goods imported while you were neither registered nor required to register are not charged.
Our free UK CBAM calculator checks the threshold and gives an illustrative cost. Our UK CBAM templates include supplier data request letters and a records register built on HMRC's rules.
CBAM prices: what to watch
EU CBAM. One certificate covers one tonne of CO2 equivalent. For goods imported in 2026, the Commission publishes a quarterly price based on EU ETS auction clearing prices in that quarter. The latest is €82.32 for Q3 2026, published on 5 October 2026. The Q4 2026 price is due on 4 January 2027, and from 2027 the price is set weekly.
See CBAM certificate price for every official quarterly price and our running estimate, and EU carbon price for daily auction results.
The headline price is not the whole cost. The number of certificates is reduced to reflect the free allowances EU producers still get. The CBAM factor that scales those allowances is 97.5% in 2026, 95% in 2027 and 51.5% in 2030, and free allocation for CBAM goods ends in 2034 under current law. So the cost per tonne of embedded emissions rises each year even if the certificate price stands still.
UK CBAM. HMRC published illustrative rates on 16 October 2026, using current data: £9.69 per tCO2e for iron and steel, £9.79 for aluminium, £8.78 for cement, £1.45 for fertiliser and £9.24 for hydrogen. They are not forecasts and create no tax liability. The rates that will apply to goods imported from January to March 2027 will be published before the end of 2026, based on UK ETS auctions held from October to December 2026. After that, a rate for each sector is published by the start of every quarter.
Follow the UK ETS on our UK carbon price page, and see UK CBAM rates for how the rate is built.
CBAM key dates
| Date | Scheme | What happens |
|---|---|---|
| 10 May 2023 | EU | Regulation (EU) 2023/956 adopted |
| 1 October 2023 | EU | Transitional, reporting-only period begins |
| 26 February 2025 | EU | Commission proposes simplification in its Omnibus package |
| 20 October 2025 | EU | Simplification Regulation (EU) 2025/2083 enters into force |
| 1 January 2026 | EU | Definitive period begins, with a real cost on imports |
| 18 March 2026 | UK | Finance Act 2026 receives Royal Assent |
| 31 March 2026 | EU | Deadline to apply for authorisation and keep importing while it is decided |
| 5 October 2026 | EU | Q3 2026 certificate price published: €82.32 |
| 16 October 2026 | UK | HMRC publishes the default values and illustrative CBAM rates |
| Before the end of 2026 | UK | Rates for imports from January to March 2027 published |
| 1 January 2027 | UK | UK CBAM applies to imports; the default values come into force |
| 4 January 2027 | EU | Q4 2026 certificate price due |
| 1 February 2027 | EU | Certificate sales open on the common central platform |
| 30 September 2027 | EU | First declaration and surrender, for 2026 imports |
| By 1 January 2028 | UK | HMRC registration service opens |
| 31 January 2028 | UK | Registration deadline for anyone liable during 2027 |
| 31 May 2028 | UK | First return and payment, for 2027 imports |
| 2029 at the earliest | UK | Possible inclusion of indirect emissions |
| 2034 | EU | Free allocation for CBAM goods ends under current law |
Proposals, not yet law
On 17 December 2025 the Commission proposed, in COM(2025) 989, extending the EU CBAM from 1 January 2028 to 180 selected steel- and aluminium-intensive downstream products, with new anti-circumvention rules. On 17 July 2026 it proposed, in COM(2026) 616, slowing the phase-out of free allocation for CBAM sectors so that it ends in 2038 rather than 2034. Both need agreement from the European Parliament and the Council, and neither had been adopted as of 10 October 2026.
Questions
What does CBAM stand for?
Carbon Border Adjustment Mechanism. It is a charge on the greenhouse gas emissions released when certain imported goods were made, so that imports face a carbon price similar to the one local producers pay. The EU and the UK each have their own CBAM.
What is the CBAM regulation?
The EU CBAM is set out in Regulation (EU) 2023/956 of 10 May 2023, amended by the simplification Regulation (EU) 2025/2083 of 8 October 2025. The UK CBAM is a tax created by Part 5 of the Finance Act 2026, with detailed regulations made in July and September 2026.
When does CBAM start?
The EU CBAM began with a reporting-only period on 1 October 2023. Its definitive period, with a real cost, began on 1 January 2026. The UK CBAM applies to goods imported on or after 1 January 2027.
Is CBAM a tax?
The UK CBAM is a tax paid to HMRC. The EU CBAM works through certificates that importers buy and surrender, priced in line with the EU Emissions Trading System. Both are often described as a carbon border tax.
Which goods does CBAM cover?
The EU CBAM covers cement, iron and steel, aluminium, fertilisers, hydrogen and electricity. The UK CBAM covers aluminium, cement, fertilisers, hydrogen, and iron and steel, but not electricity. Each scheme lists the exact commodity codes.
What is carbon leakage?
Carbon leakage happens when production and its emissions move to countries with weaker carbon pricing or climate rules, or when local products are replaced by more carbon-intensive imports. Emissions are displaced rather than cut. CBAM is designed to prevent it.
What is the CBAM Omnibus simplification?
Changes proposed by the European Commission on 26 February 2025 and adopted as Regulation (EU) 2025/2083. They added a 50-tonne annual threshold, moved certificate sales to 1 February 2027, moved the annual deadline from 31 May to 30 September, and cut the quarterly holding requirement from 80% to 50%.
Do UK exporters have to pay EU CBAM?
No. The EU importer, or its indirect customs representative, pays. UK goods are not exempt, though, so UK producers are being asked for verified emissions data, and their EU customers' costs depend on it.
How much is a CBAM certificate?
The latest official EU price is €82.32 per certificate, covering one tonne of CO2 equivalent, for goods imported in Q3 2026. The European Commission published it on 5 October 2026. HMRC's illustrative UK CBAM rates, published on 16 October 2026, range from £1.45 per tCO2e for fertiliser to £9.79 for aluminium. The first real UK rates are due before the end of 2026.
What is the UK CBAM threshold?
You must register for UK CBAM if your CBAM imports reach £50,000 by customs value over the previous 12 months, or you expect them to within the next 30 days. Imports made before 1 January 2027 do not count.
Sources
- European Commission: Carbon Border Adjustment Mechanism (checked 10 October 2026)
- European Commission: Price of CBAM certificates (checked 10 October 2026)
- European Commission: CBAM communication and news (threshold assessment, 30 September 2026) (checked 10 October 2026)
- European Commission: CBAM, new Commission proposal will simplify and strengthen (26 February 2025) (checked 10 October 2026)
- EUR-Lex: Regulation (EU) 2023/956 establishing CBAM, original text of 10 May 2023 (checked 10 October 2026)
- EUR-Lex: Regulation (EU) 2023/956, consolidated text of 20 October 2025 (checked 10 October 2026)
- EUR-Lex: Regulation (EU) 2025/2083 simplifying and strengthening CBAM (checked 10 October 2026)
- EUR-Lex: Implementing Regulation (EU) 2026/1740 correcting the CBAM default values regulation (checked 10 October 2026)
- European Commission: CBAM Registry (checked 10 October 2026)
- EUR-Lex: Directive 2003/87/EC (EU ETS Directive), consolidated text including the CBAM factor in Article 10a(1a) (checked 10 October 2026)
- European Commission: Carbon leakage (checked 10 October 2026)
- Council of the EU: ST 16973/25, Commission proposal COM(2025) 989 extending CBAM to downstream goods (17 December 2025) (checked 10 October 2026)
- European Commission: Questions and answers on CBAM, 17 December 2025 (180 downstream products; carbon leakage) (checked 10 October 2026)
- European Parliament Legislative Observatory: procedure 2025/0419(COD), CBAM downstream extension (status) (checked 10 October 2026)
- European Commission: COM(2026) 616 proposal amending the ETS Directive, 17 July 2026 (checked 10 October 2026)
- legislation.gov.uk: Finance Act 2026, Part 5 (Carbon Border Adjustment Mechanism) (checked 10 October 2026)
- legislation.gov.uk: Carbon Border Adjustment Mechanism (Transitory Provision) Regulations 2026, SI 2026/830 (checked 10 October 2026)
- HMRC: Carbon Border Adjustment Mechanism (CBAM): Policy summary (updated 9 September 2026) (checked 10 October 2026)
- HMRC: Illustrative CBAM rates and worked example, 16 October 2026 (checked 24 October 2026)
- HMRC: Rates for the Carbon Border Adjustment Mechanism (CBAM), 16 October 2026 (checked 24 October 2026)
- HMRC: Check the default values for the CBAM, cement default values page, 16 October 2026 (checked 24 October 2026)
- GOV.UK: CBAM force of law notices and reference document (updated 16 October 2026) (checked 24 October 2026)
- HM Treasury: Factsheet, Carbon border adjustment mechanism (updated 28 November 2025) (checked 10 October 2026)
- HMRC: Carbon Border Adjustment Mechanism, tax information and impact note (checked 10 October 2026)
- HMRC: Work out the date you'll need to register for CBAM (checked 10 October 2026)
- HMRC: UK CBAM list of current qualifying carbon pricing schemes (provisional, 27 August 2026) (checked 10 October 2026)
- UK ETS Authority: Free Allocation Review, main Authority response (26 November 2025) (checked 10 October 2026)
- UK government: UK-EU summit explainer (May 2025) (checked 10 October 2026)
- Council of the EU: ST 11663/25, Commission recommendation COM(2025) 408 on UK linking negotiations (checked 10 October 2026)
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