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Energy Transition, Hydrogen, Carbon, Emissions
April 25, 2025
HIGHLIGHTS
Tax on metals, cement, fertilizer, hydrogen
Rates adjusted for UK ETS free allowances
Details on tax relief, quarterly accounting
The UK government has opened a technical consultation on draft legislation for a Carbon Border Adjustment Mechanism and issued a policy update clarifying the scope, calculation, and administration of the tax, documents showed.
The UK CBAM will place a carbon price on specified goods imported to the UK from sectors that are at risk of carbon leakage. It takes effect from Jan. 1, 2027.
The mechanism "will ensure highly traded, carbon intensive goods imported to the UK from overseas face a carbon price which is comparable to the carbon price paid by domestic producers of such goods," the government said.
It is targeted at UK businesses that import GBP50,000 or more of specified goods from the aluminum, cement, fertilizer, hydrogen, iron and steel sectors over a 12-month period.
The government said a small number of goods within target sectors would be exempted, such as imported scrap products from the aluminum, iron and steel sectors.
"The sectoral and product scope of CBAM will be kept under review beyond 2027 to reflect the evolving carbon leakage risk and technological context, as well as changes to the feasibility of implementing a CBAM for further sectors or goods," it said.
CBAM charges will be based on direct and indirect emissions, which can be reported using actual data or default emission values determined by the UK government.
"From Jan. 1, 2027, there will be one default emissions value set per CBAM good. After 2027, the government is considering the feasibility of moving to an alternative approach for default emissions values," it said.
Default emissions values will be published ahead of CBAM coming into force and may be set for a single year or multiple years, it said.
CBAM rates will be published at the beginning of each quarter starting Jan. 1, 2027.
The government confirmed it would reduce the CBAM rate to reflect the existence of free allowances available to each domestic sector under the UK's Emissions Trading System.
This would produce a single CBAM rate per sector, it said.
"The government will continue to assess wider approaches to the free allocation adjustment post-2027," it said.
On carbon price relief, the government confirmed it would allow carbon pricing schemes that use standardized emissions factors to quantify embodied emissions in CBAM goods to be deductible.
The draft legislation also allows the government to implement obligations in international agreements or arrangements regarding carbon prices in other jurisdictions, "in order to simplify the calculation and claim carbon price relief."
Additionally, it can exempt goods originating in jurisdictions with linked carbon pricing schemes.
In March, the UK confirmed it was looking to align its compliance carbon market with the EU Emissions Trading System.
Finally, CBAM's first accounting period would be 12 months ending December 2027, with returns and payments due within five months.
Thereafter, however, "the government has now decided that from Jan. 1, 2028, accounting periods for CBAM will move to quarterly but with a two-month return and payment window," it said.
The April 24 draft legislation is open for technical consultation until July 3, 2025. The law is to be introduced later this year.
Platts, part of S&P Global Commodity Insights, assessed the UK ETS price (nearest December) at GBP49.50/mtCO2e on April 24.
The UK mechanism would have "a significant impact compared to the EU CBAM," Gabriel Rozenberg founder and CEO of CBAMBOO, a CBAM software compliance company, told Platts.
Whereas the EU carbon tax would affect around 180,000 businesses, the UK's CBAM was expected to affect 10,000 businesses.
"Even if the UK economy is smaller than the EU, it is going to impact a lot of businesses," he said.
While the draft largely reflects the government's October 2024 consultation response, there are a few tweaks, notably on calculating default emission values.
Previously, these were to be set in line with global average emissions weighted by relevant production volume.
The new draft says the "value may be set at a level that ensures that there would not be an advantage to any person liable to CBAM in using the value instead of determining the emissions embodied in a CBAM good."
"It is a positive sign that the UK government is serious about getting CBAM right," Rozenberg said, noting that would encourage UK businesses to engage with the mechanism.
Finally, while the draft did not specifically refer to the EU ETS, it deliberately referenced "how CBAM won't apply to EU goods if a linkage happens," he said.
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