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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

| 2 minutes read

UK CBAM consultation: same stripes or different spots? A comparison with the EU.

HMRC and HM Treasury launched a joint consultation on the introduction of a UK carbon border adjustment mechanism from January 2027. It focusses on the design and administration of the proposed CBAM; comments can be submitted until 13 June 2024.  

Following Brexit, the UK established an Emissions Trading Scheme to replace its participation in the EU Emissions Trading System. The UK and the EU ETS both subject domestic production of certain goods to carbon pricing, and both could be undermined by carbon leakage (i.e. by companies relocating to avoid higher carbon pricing and more stringent climate regulation whereby emissions are “displaced rather than reduced”). 

To address this carbon leakage concern, the EU became the first jurisdiction to extend its domestic carbon price to certain imported emissions through the introduction of a CBAM. Reporting obligations under the EU CBAM came into force on 1 October 2023, and from 1 January 2026, EU importers will also be required to pay tariffs on greenhouse gas emissions embedded in certain imported products. My colleagues explained the background to the EU CBAM, summarised key takeaways for businesses and considered the geopolitical implications of the EU CBAM in this publication

From 2027, the UK will follow suit with its own CBAM. But there are some noteworthy differences between the UK proposals and the EU CBAM. 

  • Transition and commencement: The EU CBAM has a “reporting only” transition phase from 1 October 2023 to 1 January 2026. The UK CBAM would not contain any transition period; all obligations would commence on 1 January 2027.
  • Sectoral scope: Unlike the EU CBAM, the UK CBAM would include ceramics and glass, but not electricity.
  • Payment mechanics: The EU CBAM operates on a similar basis to the EU ETS (with importers required to surrender EU CBAM certificates), while the UK CBAM would operate as a levy similar to other import taxes.
  • Pricing: While the price of EU CBAM certificates will derive directly from the EU ETS allowance price at the time the certificate is surrendered, the UK CBAM rate would be set quarterly by the UK government (albeit by reference to previous UK ETS prices). The levy under UK CBAM would also be set on a sector-by-sector basis, rather than the EU CBAM model of a floating market price applicable to all covered sectors.

I have adapted this summary from my colleagues' excellent (and much more detailed) analysis of the UK CBAM proposals. As the proposals move forward (I doubt a Labour government would abandon the project following the general election), importers of CBAM-applicable products will need to start considering how to gather emissions data requirements.


cbam, carbon pricing, slaughterandmay, tvelling