UK CBAM announced for 2027

New carbon levy will impact UK importers of carbon-intensive goods

Levy will apply to carbon-intensive imports

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.

In terms of scope, there are significant overlaps with the EU CBAM currently in force – iron, steel, aluminium, fertiliser, hydrogen and cement are all named as covered sectors. There are, however, some important distinctions. Unlike the EU rules, glass and ceramics have been included in the UK CBAM, while electricity has been excluded.

UK-based businesses that import in-scope goods should consider the commercial and operational impact of a UK CBAM. This will include understanding the reporting and regulatory requirements, as well as the potential financial and commercial costs and impact on the supply chain once the scheme becomes operational in 2027. Any businesses within the scope of both the EU and UK CBAM regimes will need to understand the differences in the requirements and identify any opportunities for operational synergies.

The proposal to introduce the regime in 2027 is likely to be met with mixed feelings, being one year later than the introduction of the full EU regime. The additional year will give more time for UK businesses to prepare, but the mismatch in start dates could provide commercial challenges for some sectors, which may see a significant uptick in the volumes of cheaper and less green imports during 2026.

Organisations that import goods from these sectors will therefore want to closely monitor how the scheme develops. A proactive approach will be critical to adapt to the legislation and remain competitive in view of these changing market dynamics.

KPMG has worked with a number of businesses to support them in their preparations for the EU CBAM. Given the current parallels between the EU and UK schemes, our specialists can provide valuable insights and learnings to help businesses prepare for this change. Please get in touch with the authors or your usual KPMG in the UK contact to see how we can help your organisation prepare for the UK CBAM.