The UK’s Carbon Border Adjustment Mechanism will affect imports into the UK of iron, steel, aluminium, fertiliser, cement and hydrogen from 1 January 2027 and will place a carbon price on the emissions embodied in these goods.
During yesterday’s budget, 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 in CBAM scope will 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 the UK’s industrial base and will publish a Call for Evidence on the fuel sector. The government is also considering the feasibility and impacts of including refined products in CBAM in the future.
The government has also made technical changes to the legislation following the April 2025 consultation, you can find further detail here. These changes include:
• the free allowance adjustment in the CBAM rate calculation will be based on a sectoral average of emissions covered by Free Allowances over a baseline period, adjusted annually to reflect the phase out of Free Allowances under the UK Emissions Trading Scheme
• carbon price relief has been 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. This will prevent 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 a full relief from customs duties, to ensure CBAM only applies where goods enter the UK market and therefore present a carbon leakage risk
• time limit for repayment claims set at 3 years for customers who have made an error on their return and overpaid CBAM
• removal of the group treatment provision following feedback that group treatment provides limited benefits to businesses
You can find more information on CBAM, including next steps, in the Policy Update here: Carbon border adjustment mechanism (CBAM): Policy update – GOV.UK
