What is CBAM:

CBAM, also known as the Carbon Border Tax, is intended to impose a tax on the importation of products. CBAM will be used to ensure that manufacturers do not choose to relocate the production of carbon intensive products to countries with more relaxed environmental regulations, avoiding the costs of emission reduction measures. CBAM will place a price on the carbon emissions of good brought into the EU to bring the carbon price on those goods in line with goods manufactured within the EU.

What CBAM means for your business:

As of 1 October 2023, EU-based businesses must start reporting on carbon intensive products imported from outside the EU In January 2026 when the CBAM becomes fully operational, these emissions will also need to be financially offset, meaning that importers will start to pay tax on the products and materials in scope of CBAM.

Materials targeted by CBAM:

  • Cement
  • Iron and steel
  • Aluminium
  • Fertilizers
  • Electricity
  • Hydrogen

Objectives of CBAM:

  1. Preventing carbon leakage by ensuring that carbon-intensive activities do not simply shift elsewhere.
  2. Promoting fair competition by aligning the costs of carbon emissions with the price of goods.
  3. Encouraging global climate action by incorporating carbon costs into international trade.

Timeline of Developments:

  • October 2023: CBAM enters first transitional phase, carbon reporting begins.

CBAM applies to EU imports of iron, steel, aluminium, electricity, certain fertilisers, cement, and hydrogen, as well as certain precursors (i.e. cathode active materials) and a limited number of simple downstream products such as screws and bolts.

  • January 2026: CBAM enters second definitive phase.

CBAM payment obligations begin to be phased-in at the same pace that EU ETS free allowances in sectors covered by the CBAM are phased-out. The EU will conduct a review to assess the feasibility of including other goods produced in sectors covered by the EU ETS in the scope of the CBAM mechanism. The report will include a timetable, setting out their inclusion by 2030.

  • January 2030: CBAM enters third phase.

The intention is that all sectors covered by the EU ETS will be within scope of the CBAM by 2030. For example, the expansion could bring the production of glass or chemicals within scope of the CBAM.

  • January 2034: CBAM enters fourth and final phase.

ETS allowances are fully phased out and final goods and materials will be taxed under CBAM.

CBAM for the UK:

The UK Government have recently announced that they are looking at implementing a UK CBAM by 2027, a year after the EU CBAM becomes fully operational. The Government have stated that the application of the UK CBAM will be linked with the UK ETS.

There is a significant overlap of the industries targeted in both the proposed UK CBAM and EU CBAM currently in force. However, the UK CBAM seeks to also include ceramics and glass, and to exclude electricity. Another area of divergence is that unlike the EU mechanism, the UK CBAM will not involve the purchase or trading of emissions certificates.

The UK CBAM will be applied to Scope 1 and Scope 2 emissions, both the direct and emissions as part of a manufacturing process or when fuels are combusted onsite (electricity, heat, cooling, steam), and select precursor product emissions embodied in imported products to ensure comparable coverage with the UK Emissions Trading Scheme. As with the EU CBAM, Scope 3 emissions will not be initially included in the UK CBAM.

The design and delivery of the CBAM will be subject to further consultation in 2024, including the precise list of products in scope.

How to get started with CBAM:

  • Look within to see what your business is already doing and continue to monitor and assess any legislative developments on the topic. Any businesses within the scope of both the EU and UK CBAM need to understand the differences in their requirements and identify opportunities for operational synergies.
  • Educate yourself and your team. This includes understanding the reporting and regulatory requirements, as well as the financial and commercial costs, and the impact on the supply chain once the scheme becomes operational in 2027.
  • If you are already preparing for the EU CBAM, ask yourself how you can harmonize data collection and reporting processes across the two mechanisms.
  • And don’t forget, you can always speak to the BRC! We're here to support you where we can on your work on capturing and reporting carbon emissions as we guide retail’s approach to reaching our Net-Zero by 2040 goal.

For any queries, please contact our policy lead Adrian Simpson.