UK CBAM consultation: Insights and Observations
Further to the publication on 21 March of the Government’s consultation on the introduction of a UK carbon border adjustment mechanism (CBAM) from January 2027, we have set out our analysis and insights. To hear about all of this in more detail, plus the implications for UK businesses, sign up to our client webinar on Wednesday 17th April 2024, 12.00 – 12.45 at our registration page.
As had been previously announced, it is proposed that the UK CBAM will cover certain carbon intensive imports in the following sectors: aluminium, cement, ceramics, fertilisers, glass, hydrogen, and iron and steel. The consultation contains details of the specific commodity codes to be included with the scope at Annex A.
The UK proposals have a number of similarities with the EU CBAM regime, in-keeping with the shared overall objectives of preventing carbon leakage and accelerating decarbonisation. However, some notable points of variation include:
- The nature of the CBAM charge: The UK CBAM is designed with many tax-like attributes, and will be administered by HMRC. Returns and payments will be due quarterly. By contrast, under the EU regime, it will be necessary to purchase CBAM Certificates to settle any CBAM charge, and these will be surrendered annually.
- The UK regime proposes a de minimis of £10,000 per rolling 12-month period. On the face of it, this would appear to be of more practical impact that the current EU de minimis of EUR 150 per consignment.
- The UK regime proposes the ongoing availability of default values for the purposes of calculating and reporting emissions, although it is noted that actual emissions data (independently verified) is preferred. The EU CBAM requires emissions to be calculated, and independently verified, using its specific methodology.
- Both regimes allow a credit for carbon prices already paid on the goods, although the UK will require independent verification of this.
As an overall observation, it would appear that the UK Government is seeking to model the UK CBAM regulations on the UK VAT regime. This will have the advantage of providing a “tried and tested” framework, although noting that the nature of a CBAM will present clients with nuanced considerations and challenges.
As affected businesses familiarise themselves with the proposals, we recommend that they initiate a high-level impact assessment and start to identify any particular pinch points in their supply chain – for example, relating to business critical products or suppliers, or inflexible contracting arrangements.
The Consultation itself will remain open until 13 June 2024, and interested parties are invited to share their views. There is also the opportunity for stakeholders to participate in a roundtable discussion.
22nd March 2024 - UK CBAM consultation launched
On 21 March, the UK Government published a consultation on the introduction of a UK carbon border adjustment mechanism (CBAM) from January 2027. As previously announced in December, it is proposed that the UK CBAM will cover certain carbon intensive imports in the following sectors: aluminium, cement, ceramics, fertilisers, glass, hydrogen, and iron and steel. The consultation contains details of the specific commodity codes to be included with the scope at Annex A. Interested parties are invited to share their views on the consultation, which will remain open until 13 June 2024. There is also the opportunity for stakeholders to participate in a roundtable discussion.
Check back here over the coming days for further commentary and insights.
8th March 2024
On 18 December 2023, the UK Government announced its plans to implement a carbon border adjustment mechanism (UK CBAM) from 2027. This will impose a levy on certain carbon-intensive imports from countries with a lower or no carbon price. The aim is to reduce the risk of ‘carbon leakage’ in order to encourage domestic decarbonisation in line with the UK’s climate goals. While the detail of the legislation is subject to further consultation in 2024, the announcement sets out which sectors will be impacted by the rules.
On the same day, the UK Government published an accompanying factsheet, providing more background information about carbon leakage, carbon pricing, the role of a CBAM, and its interaction with other carbon emissions regulations.
Proposed scope of the UK CBAM
The Government is proposing that the UK CBAM will cover the following goods: iron, steel, aluminium, fertiliser, hydrogen, cement, glass and ceramics. Those familiar with the EU regime will recognise the significant overlap in scope, although unlike the EU rules, glass and ceramics have been included in the UK CBAM, while electricity has been excluded. Further KPMG commentary on the 18 December 2023 announcement can be found here.
Impact for UK businesses
Whilst the proposed commencement date is still some way off (2027), any UK business that imports carbon-intensive goods may want to start a high-level impact assessment. The purpose of this would be to identify: the likely volumes of affected products; the potential scale of any financial impact; any particular supply chain sensitivities; and the potential broader commercial impacts (e.g. on pricing, market competitiveness).
If the UK CBAM broadly follows the principles of the EU CBAM, we would expect it to have the greatest impact on those UK businesses that import:
- in-scope materials from overseas jurisdictions with low or no carbon pricing;
- unprocessed in-scope materials for subsequent manufacturing in the UK (rather than assembled or partially processed products); or
- in-scope materials where there are no alternatives, in terms of either the type of product or the location of the supplier (e.g. for highly specialised materials).
