UK CBAM consultation published

Last month the Government published a consultation on the introduction of a UK carbon border adjustment mechanism (CBAM) from January 2027

Last month the Government published a consultation on the introduction of a UK CBAM

As reported in the previous edition of Tax Matters Digest, on 21 March 2024 the Government published a consultation on the introduction of a UK carbon border adjustment mechanism (CBAM) from January 2027.

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 within 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 than 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; and
  • 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 businesses 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. 

KPMG in the UK is running a client webinar on Wednesday 17 April 2024, 12.00 – 12.45pm to provide further analysis and insight. Our registration page for this event is now live.  

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.