UK Government to implement CBAM by 2027

Background

On 30 March 2023 the UK Government published a consultation titled “Addressing carbon leakage risk to support decarbonisation”. The consultation considered a number of potential measures aimed at reducing the UK’s carbon leakage risk, including the introduction of a UK Carbon Border Adjustment Mechanism (CBAM), mandatory product standards (MPS), as well as policies which would help grow the UK market for low emission industrial products.

Following the consultation period, on 18 December the UK Government published a summary of responses to this alongside a CBAM factsheet. As part of this publication the Government announced that it will implement a CBAM in the UK by 2027 and this will apply a charge on carbon emissions from the following sectors: aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel. The implementation and further development of this policy will be subject to consultation in 2024. The UK’s CBAM announcement follows the implementation of an EU CBAM which took effect from 1 October 2023.

CBAMs introduce a carbon price on imported products. This aims to reflect both the carbon emitted in production together with any gap between the carbon price applied in the country of origin and the carbon price that is incurred by UK-based production. CBAM adoption will have significant implications for industrial supply chains, not only affecting producers of covered goods but also industries up and down the value chain, such as automotive, construction, and manufacturing sectors. As the cost of carbon-intensive products rises, companies may have to adjust their business models, supply chains, and operations to reduce their carbon footprint.

Implications

Although the policy is still subject to consultation and will be implemented at some point in 2027, businesses should start considering how a UK CBAM impacts’ their cross border supply chains and how a UK CBAM impacts any work that they may be preparing as part of EU CBAM compliance. It’s important to note that the proposed sectors for the UK CBAM are wider than those for the EU CBAM with glass and ceramics being brought in scope - whilst electricity is not included at this stage.

If you have any questions or would like to discuss please reach out to your PwC indirect tax adviser.