The UK's new carbon border tax is coming

From 1 January 2027, a new tax will land on goods imported into the UK from some of the most carbon-intensive industries on the planet. It is called the Carbon Border Adjustment Mechanism, or CBAM. If your business imports aluminium, cement, fertilisers, hydrogen, or iron and steel, it is heading straight for your bottom line.

The idea is simple. UK manufacturers already pay a carbon price through the UK Emissions Trading Scheme (UK ETS). Foreign producers, in many cases, do not. CBAM closes that gap by placing a carbon tax on specified imported goods, so that overseas products face a comparable cost to domestically produced ones. The aim is to stop “carbon leakage” - the risk that production simply moves to countries with weaker climate rules without any real reduction in global emissions.

 

Where the legislation stands

The primary legislation for the UK CBAM was enacted in the Finance Act 2026. Secondary implementing legislation is still being finalised.

HMRC published a first set of draft secondary regulations on 10 February 2026, covering administrative provisions, the CBAM rate calculation, and carbon price relief, alongside a six-week technical consultation that closed on 24 March 2026. A second set of draft secondary legislation dealing with emissions calculation, monitoring, and verification was published on 9 April 2026 for consultation, which closes on 21 May 2026. The Government intends to review all responses and lay the final secondary legislation later in 2026, ahead of the 1 January 2027 start date.

 

The essentials

The UK CBAM will apply to imports of goods in five sectors: aluminium, cement, fertilisers, hydrogen, and iron and steel. Specific goods in scope within those sectors are identified by a commodity code, with a small number of exclusions. The tax will apply where a business imports CBAM goods with a value of GBP50,000 over a given period. Businesses will also be able to claim “carbon price relief” where the goods have already borne a qualifying carbon tax in their country of origin.

 

How does the UK CBAM differ from the EU CBAM?

The EU CBAM entered its definitive phase on 1 January 2026, a full year ahead of the UK. Although the two regimes share the same core objective, they differ in several important ways, including:

• Mechanism type: EU CBAM will require importers to buy and surrender certificates whereas UK CBAM is tax based.
• Sectors in scope: Electricity is included in EU CBAM, not UK CBAM.
• Start date: EU CBAM operated a transitional period before entering into the definitive phase from 1 January 2026. UK CBAM will have no transitional period and will be fully operational from 1 January 2027.
• Thresholds: EU CBAM applies a mass-based threshold (50 tonnes of CBAM goods per year) whereas UK CBAM applies a value-based threshold (GBP50,000 of CBAM goods imported over a given period) (value-based)

 

What should businesses be thinking about?

If your business trades in CBAM covered goods between the UK and the EU, you could be caught by both regimes simultaneously: one as an importer into the EU, and the other as an importer into the UK. That means potentially navigating two different sets of registration, reporting, and payment obligations, with two different thresholds, two different pricing methodologies, and two different penalty regimes.

There are ongoing discussions about linking the UK and EU emissions trading systems, which could eventually lead to mutual CBAM exemptions, but negotiations remain ongoing. In the meantime, the practical advice is straightforward: check whether your imports fall within scope, map your exposure under both regimes, and start getting your emissions data in order. The UK's secondary legislation is still being settled, but the direction of travel is clear and January 2027 is not far away.