The UK will administer its carbon border mechanism through the domestic tax system when the measure takes effect on 1 January 2027, adopting an approach that differs from the European Union’s certificate-based model.
A UK government official told Carbon Pulse that the design was informed by experience with the EU Carbon Border Adjustment Mechanism (CBAM). Rather than requiring importers to purchase and surrender certificates, Britain will operate its mechanism as a tax.
Five industrial sectors covered
According to HM Revenue & Customs (HMRC), the UK measure applies to specified goods from the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors.
The applicable tax rates are designed to reflect the carbon costs incurred by comparable UK producers. The calculation also incorporates adjustments related to free allowances under the UK Emissions Trading Scheme.
Importers will be able to base their calculations on qualifying verified emissions data or use the applicable default values. Separate provisions will address relief for eligible carbon prices paid abroad.
Different payment systems, similar data requirements
The UK tax-based structure changes how the carbon border charge is administered compared with the EU system, which uses the purchase and surrender of CBAM certificates.
However, importers will still need to establish whether their products fall within the mechanism’s scope, determine the associated emissions and maintain the records supporting their calculations.
The distinction is particularly relevant for companies trading across both the UK and EU markets. Similar carbon-border policy objectives do not create identical compliance obligations, as the two systems have separate approaches to product coverage, emissions calculations and administrative procedures.
For suppliers serving both jurisdictions, the UK’s use of the domestic tax system simplifies the payment mechanism, but information will still need to satisfy the requirements of two separate carbon-border regimes.
