The illustrative UK CBAM rates
On 16 October 2026 HMRC published illustrative rates for all five CBAM sectors. They use the average UK ETS auction price for July to September 2026 and initial data from the UK ETS baseline data reporting process, which the UK ETS Authority is still checking.
| Sector | Illustrative rate (£ per tCO2e) |
|---|---|
| Iron and steel | £9.69 |
| Aluminium | £9.79 |
| Cement | £8.78 |
| Fertiliser | £1.45 |
| Hydrogen | £9.24 |
Illustrative only
HMRC says these figures show what the rates would be from 1 January 2027 if based on current data. The data is likely to change before then. They are not forecasts, and they do not create any tax liability.
The illustrative rates are low compared with the UK ETS price because, in the baseline years used, the CBAM sectors received most of their allowances free (87.1% of emissions for cement). The rate rises as free allocation is phased out.
The UK CBAM rate formula
Section 149 of the Finance Act 2026 calls the rate the sectoral domestic price. It is worked out in two steps, with detail added by regulations 3 and 4 of SI 2026/809.
- Find the average UK ETS price: the mean of all UK ETS auction clearing prices in the quarter before the import quarter. If there were no auctions, the most recent quarter with auctions is used.
- Reduce that price by the sector's baseline free allocation percentage, multiplied by a yearly phase-out reduction factor.
Written as a formula: CBAM rate = average UK ETS auction price × (1 − baseline free allocation % × reduction factor).
The baseline free allocation percentage is the share of a sector's direct emissions covered by free allowances. HMRC calculates it by dividing the total free allowances for the UK ETS sub-installations that make CBAM goods by their total direct emissions over the same period. Under the legislation the period is 2019 under the EU ETS, and 2022 and 2023 under the UK ETS.
The reduction factor is the same one used to cut free allowances for UK CBAM sub-installations in the UK ETS. It is set in Article 16(14) of the UK version of Commission Delegated Regulation (EU) 2019/331, part of the UK ETS free allocation rules.
| Scheme year | Factor | Effect on free allowances for CBAM sectors |
|---|---|---|
| 2027 | 0.975 (97.5%) | Cut by 2.5% |
| 2028 | 0.95 (95%) | Cut by 5% |
| 2029 | 0.9 (90%) | Cut by 10% |
| 2030 | 0.775 (77.5%) | Cut by 22.5% |
As the factor falls, the reduction gets smaller, so the CBAM rate moves closer to the full UK ETS price. This mirrors the gradual cut in free allowances for UK producers.
HMRC's worked example: cement
HMRC's note shows how the illustrative cement rate was reached. The inputs are official but provisional, and may change before 1 January 2027.
| Step | Input | Result |
|---|---|---|
| Average UK ETS auction price | July to September 2026 | £58.15 per tCO2e |
| Baseline free allocation percentage | Cement sector | 87.1% |
| Phase-out reduction factor | 2027 | 97.5% |
| CBAM rate | £58.15 × [1 − (87.1% × 97.5%)] | £8.78 per tCO2e |
HMRC notes that, because of presentational rounding, totals may not exactly match the inputs shown. It published the free allocation percentage for cement only. The percentages for the other four sectors sit behind their illustrative rates but were not given separately.
To turn a rate into a bill, multiply it by the embodied emissions. For example, 1,000 tonnes of Portland cement on the default value of 1.375 tCO2e per tonne is 1,375 tCO2e. At the illustrative £8.78 that would be £12,072.50 before any relief. See our UK CBAM default values for every cement, fertiliser, hydrogen and aluminium code.
When rates are published and which prices feed them
The rate that applies to a good is the rate for its sector in the quarter it was imported. HMRC's example: steel bars imported in February 2028 use the iron and steel rate for 1 January to 31 March 2028.
HMRC says the rates for 1 January to 31 March 2027 will be published before the end of 2026. From 1 January 2027, it will publish each quarter's rates by the beginning of that quarter.
| Goods imported in | UK ETS auctions used | Reduction factor |
|---|---|---|
| January to March 2027 | October to December 2026 | 97.5% |
| April to June 2027 | January to March 2027 | 97.5% |
| July to September 2027 | April to June 2027 | 97.5% |
| October to December 2027 | July to September 2027 | 97.5% |
UK ETS auctions run fortnightly on ICE Futures Europe, with a £28 auction reserve price since 8 April 2026. That means no auction can clear below the reserve price, which also sets a floor for the price input. From 1 January 2027 the reserve price will be adjusted each year in line with inflation.
For context, the UK ETS Authority's monthly average price rose from £46.82 in April 2026 to £60.17 in September 2026. It is based on December futures settlement prices, not auction clearing prices, so it is a guide only. The next monthly figure is due on 10 November 2026.
How to estimate a UK CBAM liability
Your CBAM bill for a consignment follows three steps. HMRC's guidance and the legislation set out each part.
- Embodied emissions (tCO2e) = weight of goods in tonnes × emissions per tonne, using either verified actual data or the official default value.
- Gross CBAM = embodied emissions × the sector's CBAM rate for the quarter of import.
- Net CBAM = gross CBAM − Carbon Price Relief, where relief is the effective carbon price paid abroad × the emissions it covered. Relief cannot exceed the CBAM due.
Emissions from in-scope precursor goods are added to the embodied emissions. Relief worked out in a foreign currency is converted to sterling using HMRC's exchange rate for the calendar quarter before import.
What is still unknown
- The final baseline free allocation percentage for each sector. The UK ETS Authority is still checking the baseline data, and HMRC says the list of sub-installations will be finalised for 1 January 2027.
- The UK ETS auction prices for October to December 2026, which will set the first quarter's rates.
- Whether any order changes the yearly reduction factor before it takes effect.
Section 156 of the Finance Act 2026 lets the Treasury exempt goods from countries whose emissions trading scheme is linked to the UK ETS. HMRC states that no jurisdiction is currently exempt.
Questions
What is the UK CBAM rate for steel?
No real rate applies yet. HMRC's illustrative iron and steel rate, published on 16 October 2026 using current data, is £9.69 per tCO2e. The first real rate, for January to March 2027, will be published before the end of 2026.
When will the first UK CBAM rates be published?
HMRC says the rates for 1 January to 31 March 2027 will be published before the end of 2026. After that, each quarter's rates are published by the start of the quarter.
How is the UK CBAM rate calculated?
It starts with the mean UK ETS auction clearing price from the previous quarter. That price is cut by the sector's baseline free allocation percentage times a yearly factor, which is 97.5% for 2027. For cement, HMRC's illustration is £58.15 × [1 − (87.1% × 97.5%)], which it gives as £8.78 after rounding.
Why is the fertiliser rate so much lower?
The rate depends on how much of each sector's emissions were covered by free allowances. HMRC's illustrative fertiliser rate is £1.45, against £8.78 to £9.79 for the other sectors. Under the formula, that implies a higher share of free allocation in the fertiliser baseline data. HMRC has not published the fertiliser percentage itself.
Is the UK CBAM rate the same as the UK carbon price?
No. It starts from the UK ETS auction price. It is then reduced to reflect free allowances given to UK producers in the same sector, so it is much lower.
Which rate applies to my import?
The rate for your goods' sector in the quarter they were imported. For goods imported between January and March 2027, the rate uses UK ETS auctions from October to December 2026.
Will UK CBAM rates go up over time?
The rate tracks UK ETS auction prices, which change. The yearly factor also falls from 97.5% in 2027 to 77.5% in 2030. On its own, that pushes the rate closer to the full UK ETS price.
Sources
- HMRC: Illustrative CBAM rates and worked example, 16 October 2026 (checked 21 October 2026)
- HMRC: Rates for the Carbon Border Adjustment Mechanism (CBAM), 16 October 2026 (checked 21 October 2026)
- HMRC: Check the default values for the CBAM, 16 October 2026 (checked 21 October 2026)
- legislation.gov.uk: Finance Act 2026, section 149 (Rate) (checked 10 October 2026)
- legislation.gov.uk: The CBAM (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026, SI 2026/809 (checked 10 October 2026)
- legislation.gov.uk: Regulation 2019/331 (UK version), Article 16, including paragraph 14 factors (checked 10 October 2026)
- HMRC: CBAM policy summary (updated 16 October 2026) (checked 21 October 2026)
- HMRC: Work out your Carbon Price Relief (checked 10 October 2026)
- UK ETS Authority: Taking part in the UK Emissions Trading Scheme markets (updated 12 October 2026) (checked 21 October 2026)
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