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What is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is a tax to ensure that carbon is reduced in manufacturing supply chains which are energy intensive. Whilst the UK has domestic policies such as the Emissions Trading Scheme (ETS) to incentivize producers here to reduce carbon, there is a risk that investment could be undercut by imports who are not taking the same approach.
CBAM aims to level the playing field for domestic producers and maintain overall progress in carbon reduction by putting an import tax on products which use more carbon than domestic production. Other countries are taking a similar approach. The most relevant one for members is the EU scheme will come into force from January 2026. The UK scheme is scheduled to begin in January 2027.
How will it affect members?
The current proposals will only impact some members’ supply chains. CBAM UK covers aluminum, iron and steel products, cement, fertiliser and hydrogen. Products such as nuts and bolts, kitchen utensils, foil and building products will be covered. Importers will need to calculate the embedded carbon, compare against the UK scheme and pay relevant taxes from 2027.
There is also a concern about alignment with the EU scheme, where members are using European supply chains. This has the potential to add friction to EU/UK imports and exports if the schemes don’t align.
What is the BRC doing about this?
We are supportive of CBAM in principle. It should incentivise carbon reduction without harming domestic producers, leading into our overall objectives of delivering net zero through our Climate Action Roadmap.
Our main lobbying objective has been to ensure the UK scheme aligns with the EU one to reduce any friction in supply chains. We submitted a response to the Government’s consultation on its draft legislation emphasising this point this month. We are also working closely with the Department for Business and Trade team which is considering how the UK aligns with the EU on business legislation, and CBAM is on their list. The UK Government also suggested close alignment with the EU at the summit in May to discuss the revised UK/EU trade deal.
Next Steps
We expect the Government to introduce the legislation in the Autumn to meet its objective of implementation on 1/1/27. We will continue to push for close alignment with the EU regulation which begins on 1/1/26 and will update members ahead of the implementation of UK CBAM.
