UK CBAM gets practical

From legislative framework to operational toolkit

The Carbon Border Adjustment Mechanism (Emissions and Verification) Regulations 2026 established the legal framework for determining and verifying the emissions embodied in imported CBAM goods. HMRC’s latest package moves the regime from a legislative framework towards an operational compliance model.

The key publications include:

• Product-level default emissions values for all five UK CBAM sectors;
• Illustrative CBAM rates and a worked example showing how those rates are calculated;
• A comprehensive 313-page technical guide covering monitoring, reporting and verification requirements for installation operators, verifiers and accreditation bodies;
• Guidance for importers on obtaining and reporting emissions intensity data; and
• Supplementary guidance covering verifier eligibility, accreditation requirements, verification activities and reporting obligations.

Taken together, these materials provide importers, overseas manufacturers and verifiers with the practical detail needed to build data collection processes, supplier engagement strategies and supporting evidence frameworks.

Default emissions values finally arrive

One of the most significant practical gaps in the UK CBAM framework has now been addressed. HMRC have published default emissions values by eight-digit Combined Nomenclature (CN) code across all five CBAM sectors. These values are expressed in tonnes of carbon dioxide equivalent per tonne of product (tCO₂e/t) and may be used instead of verified actual emissions data.

Importantly, the UK has adopted a phased approach to default values. For 2027 and 2028, a single default value will apply to each CBAM good regardless of country of origin. These values are derived using EU data adjusted to reflect the trade-weighted composition of UK imports, excluding EU data. From 2029, the UK intends to move to country-specific default values, providing a more granular reflection of the expected emissions associated with imports from different jurisdictions.

The guidance also clarifies how default and actual emissions data may be combined. Importers may use default values for precursor goods while relying on actual emissions data for the downstream processes that transform those precursors into the final CBAM good. However, the reverse approach is not permitted. Actual precursor emissions cannot be combined with a default value for the final product. In addition, a return submitted using default values cannot subsequently be amended to replace those defaults with actual emissions data.

Default values should be viewed not only as a compliance fallback but also as a practical tool for exposure modelling. Businesses should compare the cost and effort of obtaining verified actual emissions data against the potential liability associated with the applicable default value.

The first indication of future CBAM liabilities

HMRC have also published illustrative CBAM rates showing how future tax liabilities would be calculated using current market data. The rates are based on the average UK Emissions Trading Scheme (UK ETS) auction price for July to September 2026, sector emissions data and the proportion of emissions that continue to benefit from free UK ETS allowances.

These rates are illustrative only and do not give rise to any tax liability. The first legally effective CBAM rates, covering the period from 1 January to 31 March 2027, will be published before the end of 2026 and will subsequently be recalculated on a quarterly basis. Nevertheless, the figures provide businesses with their first UK-specific benchmark for exposure modelling, pricing strategies and commercial discussions.

The cement example included within the HMRC publication is particularly informative. Using an average UK ETS price of £58.15/tCO₂e, a baseline free allocation percentage of 87.1 percent and the 2027 free-allocation phase-out factor of 97.5 percent, HMRC derive an illustrative CBAM rate of £8.78/tCO₂e. The example demonstrates that UK CBAM rates are not simply equal to the prevailing UK ETS carbon price. Instead, they are determined through a statutory methodology that reflects sector-specific free allocation arrangements.

Emissions reporting and verification: the practical challenge

The publication of HMRC's technical guidance transforms the UK's MRV framework from a conceptual requirement into an operational process. For overseas manufacturers seeking to provide actual emissions data, the compliance pathway is now considerably clearer, covering emissions monitoring, verification requirements and supporting evidence expectations.

The guidance explains in detail how installation operators should monitor emissions, how verifiers should perform their work and how accreditation bodies should assess verifier competence. It supplements the Finance Act 2026, the Emissions and Verification Regulations, the System Boundaries Document and the relevant force-of-law notices.

For overseas manufacturers seeking to provide actual emissions data to UK importers, the broad compliance pathway is now clear:

• Establish an appropriate monitoring plan and supporting procedures;
• Collect and monitor data throughout a calendar-year monitoring period;
• Prepare emissions information for the relevant CBAM goods;
• Engage an independent accredited verifier;
• Obtain a verification report or product-specific verification summary; and
• Provide that evidence to the UK importer.

HMRC have made it clear that the guidance remains subject to refinement. Technical feedback has been invited until 13 November 2026, and further revisions may be made before the regime takes effect on 1 January 2027.

While the importer remains legally responsible for filing the CBAM return, much of the underlying compliance activity takes place within suppliers' organisations. Businesses should therefore view emissions reporting and verification as a supply-chain challenge as much as a tax and customs compliance obligation. Early supplier engagement will be critical to ensuring the availability, quality and verification of emissions data.

UK CBAM in practice: how the calculation works

The CBAM calculation can be summarised as a five-step process:

1. Identify the goods falling within scope and determine the correct eight-digit CN code;
2. Quantify the net mass of the imported goods at the tax point;
3. Measure emissions using either verified actual emissions data or HMRC default values;
4. Price those emissions using the applicable quarterly CBAM rate; and
5. Adjust for any available carbon price relief and calculate the resulting CBAM liability.

Priority actions before 1 January 2027

Assess exposure

• Refresh CBAM impact assessments using HMRC default values and illustrative rates; and
• Identify products, suppliers and trade flows likely to be materially affected by UK CBAM.

Engage suppliers

• Determine which suppliers are capable of providing verified actual emissions data; and
• Issue targeted information requests and assess supplier verification readiness.

Prepare governance and processes

• Align product classification, supplier and emissions datasets within compliance processes;
• Review contractual obligations relating to emissions data provision and verification; and
• Monitor further HMRC publications, including publication of the first legally effective CBAM rates.

A decisive shift towards implementation

The 16 October package represents a significant milestone in the development of UK CBAM. Many of the key policy questions have now been answered and the remaining challenge for businesses is increasingly operational rather than technical. Businesses now have access to the practical tools required to model exposure, engage suppliers and build compliance processes.

Default values provide an important fallback where actual emissions data cannot be obtained. However, the more strategic question for many businesses will be determining where reliance on default values is acceptable and where investment in verified installation-level emissions data can deliver a more favourable tax outcome and stronger evidential position.

With UK CBAM due to commence on 1 January 2027, businesses should be moving from policy monitoring to implementation planning. The publication of default emissions values, illustrative rates and detailed MRV guidance has significantly reduced uncertainty around the regime. For many organisations, the most important next step is a supplier-by-supplier assessment of data availability, verification readiness and potential CBAM exposure. Organisations that begin this process now will be better positioned to manage compliance obligations, minimise implementation risk and optimise future CBAM outcomes.

For further information please contact:

• Jenna Glass
• Joseph Palavila Jacob