The UK Government has announced plans to implement a carbon border tax from 2027, known as the UK Carbon Border Adjustment Mechanism (UK CBAM).
From 2027, any business importing iron, steel, aluminium, ceramics, and cement into the UK will be subject to mandatory disclosures and required to pay a fee based on the amount of carbon associated with the production of the product (known as embodied carbon). The fee will be worked out based on the carbon pricing of the export country. Products purchased from countries with a lower or no carbon price will be in-scope for the application of a carbon tax.
The UK and the EU are both implementing a carbon border tax to reduce the risk of companies offshoring their emissions (i.e., purchasing carbon intensive products from countries with lower climate action/less comprehensive climate policies). The hope is that the higher costs will discourage businesses from purchasing and importing products from highly polluting countries by creating a more price competitive market for products produced more sustainably domestically.
Whilst the UK’s CBAM applies to imports of iron, steel, aluminium, ceramics, and cement, the EU’s CBAM will additionally apply to fertilisers, hydrogen, and glass. Additionally, the EU’s CBAM commenced its transitional phase on the 1st October 2023, requiring disclosures on applicable products, with certificates and payments required from 2026. Whilst the UK’s CBAM will begin in 2027.
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