On 18 December 2023, the UK government announced its plan to introduce a UK carbon border adjustment mechanism (CBAM) by 2027. For more information please visit gov.uk. While most of details will be decided following a further government consultation in 2024, we summarise the announcement below. 

Background

From 30 March to 22 June 2023, the UK government consulted on range of possible policy measures to mitigate carbon leakage and received over 160 submissions from stakeholders. The consultation sought views on: (i) a carbon border adjustment mechanism (CBAM); (ii) mandatory product standards (MPS); (iii) other policy measures to help grow the market for low carbon products; and (iv) emissions reporting which could support future carbon leakage and decarbonisation policies. The UK government published a summary of responses received during the consultation. More information is available at gov.uk. 

UK CBAM (proposal) 

The UK CBAM will apply a charge on the carbon emissions embodied in imports as follows: 

• CBAM goods: CBAM will apply to imports of iron & steel, aluminium, cement, fertiliser, hydrogen, ceramics and glass into the UK. 
• Timeline: the UK plans to introduce the CBAM by 2027, but it’s not clear whether there will be a transitional period similar to the EU CBAM.
• Scope of emissions: will include scope 1 emissions from direct activities by an operator, scope 2 emissions from an operator’s consumption of purchased electricity, heat, steam, cooling, and emissions from selected precursors (raw materials) embodied in CBAM goods.
• CBAM liability: is the amount charged on imports of the CBAM goods. CBAM liability will be imposed directly on the importer on the basis of the amount of emissions embodied in the imported goods, multiplied by the UK’s effective carbon price (applied under the UK Emissions Trading Scheme (ETS)) less the carbon price applied to the goods in the country of production. The UK will consult on criteria for recognising overseas carbon pricing schemes that will result in a reduction in the UK CBAM charge.

Voluntary product standards and embodied emissions reporting (under development)

On 18 December 2023, the UK government also announced its intention to work with industry to establish voluntary product standards that businesses could choose to adopt to help promote their low carbon products to consumers and to develop an embodied emissions reporting framework that could serve future carbon leakage and decarbonisation policies. More information is available at gov.uk. The UK government will carry out a technical consultation in 2024 on voluntary product standards and embodied emissions reporting.

• Voluntary product standards would be used to help define, and differentiate between, lower and higher carbon versions of products. The standards would be voluntary in the sense that a manufacturer would not be required to meet any one of these standards in order to manufacture or sell a product in the UK.
• Embodied emissions reporting: the UK government will develop a reporting system where a standardised methodology will be used for the monitoring and reporting of the embodied emissions of products. 

Looking ahead

The UK government will work on details of the UK CBAM, voluntary product standards and embodied emissions reporting through consultations in 2024. Lots of details are still missing in the UK CBAM proposal (such as methodologies to calculate emissions of CBAM goods) and so it remains to be seen whether and how the UK CBAM will be similar to (or diverge from) the EU CBAM, which started to apply from 1 October 2023 in a transitional manner only with reporting obligations and will be fully in place from 1 January 2026 with financial obligations.

You can read more at tradecomplianceresourcehub.com.