UK CBAM Draft Legislation Explained

At Dubrink, we’ve been closely monitoring developments in the Carbon Border Adjustment Mechanism (CBAM) landscape. Yesterday marked an important milestone with the publication of the UK CBAM draft legislation for technical review. Our team has analyzed the document thoroughly and compared it against the EU CBAM framework that we’re deeply familiar with.

Implementation Timeline and Scope

The UK CBAM is set to launch on January 1, 2027. However, this doesn’t necessarily mean immediate payment obligations for all importers, as we’ll explain below.

The mechanism initially covers five sectors:

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

Notably, electricity—which falls under EU CBAM—is excluded from the UK version.

Administrative Structure

While the EU CBAM operates through national competent authorities coordinating with the European Commission, the UK has assigned HMRC (His Majesty’s Revenue and Customs) as the sole enforcement body responsible for data verification and access.

Conceptual Approach

The UK CBAM is explicitly structured as a tax rather than a reporting obligation. This is reflected in the terminology used—“accounting periods” instead of “reporting periods”—signaling an interesting shift toward the carbonization of goods.

Registration Requirements

Similar to the EU’s “authorized declarant” status in concept (though not process), importers who meet certain thresholds must register under UK CBAM. The registration threshold is £50,000 annually, which can be triggered in two ways:

1. Forward-Looking Test

If you anticipate exceeding £50,000 in imports within a 30-day window, you must register within 30 days of that determination. For example:

  • May 10: Expected imports of £20,000
  • May 25: Expected imports of £18,000
  • June 5: Expected imports of £16,000

Since the total (£54,000) exceeds the threshold within 30 days, registration would be triggered on May 10.

2. Backward-Looking Test

For less regular importers, registration is required once the annual threshold is exceeded. For example:

  • January: £12,000
  • April: £15,000
  • July: £10,000
  • September: £18,000

Registration would be required on October 1, 2027, after the £50,000 threshold is crossed.

Important note: The 30-day registration window represents a significant departure from the EU’s 120-day timeframe for authorized declarants. Keep in mind that the backward-looking test looks at data no earlier than January 1st 2027.

Emissions Calculation

UK CBAM follows similar principles to EU CBAM regarding emissions:

Actual Emissions

While the detailed methodology isn’t published yet, the draft indicates that technical standards from international organizations may be used—potentially including the GHG Protocol or elements of EU CBAM legislation. Verification mechanisms are mentioned but not fully detailed.

Default Values

Default values can be applied with variations based on emission locations. Interestingly, the draft suggests these values will be “set high enough so that no company benefits by choosing default values instead of calculating actual emissions”—paralleling the EU CBAM approach of incentivizing actual calculations.

Carbon Pricing and Payments

The UK introduces a new concept called the Sectoral Domestic Price, published quarterly by the Treasury. This price varies by CBAM sector and uses the UK ETS quarterly prices with specific adjustment mechanisms.

Carbon Price Relief

Similar to EU CBAM’s “carbon price paid” concept, importers can deduct carbon prices already paid in jurisdictions with recognized emissions trading systems.

Payment Schedule

Payments for each accounting period must be made by the last working day of the second month following the period end:

  • Q1: Last working day of May
  • Q2: Last working day of August
  • Q3: Last working day of November
  • Q4: Last working day of February

Check Your CBAM Impact

Wondering if your products fall under UK CBAM? We’ve updated our tool at dubrink.com/check to cover both EU and UK CBAM requirements. Simply enter your HS or CN codes to check your status, subject to any changes in the final legislation.

Need Assistance?

At Dubrink, we specialize in navigating both UK and EU CBAM requirements. If you have questions about how these regulations affect your business, please contact us for expert guidance.

Note: This analysis is based on the draft legislation and may be subject to change in the final version.