Draft legislation outcome: carbon border adjustment mechanism
Updated 26 November 2025
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This publication is available at https://www.gov.uk/government/consultations/draft-legislation-carbon-border-adjustment-mechanism/outcome/draft-legislation-outcome-carbon-border-adjustment-mechanism
As announced in December 2023, and following policy consultation in 2024 and technical consultation in 2025, the government will legislate in Finance Bill 2025 to 2026 to introduce a carbon border adjustment mechanism (CBAM) from 1 January 2027.
Draft primary legislation for CBAM was published in April 2025 for technical consultation. Since this consultation, the government announced at Budget 2025 that indirect emissions associated with the production of CBAM goods will not be included in scope of CBAM at its implementation on 1 January 2027. Their inclusion in CBAM scope will be delayed until 2029 at the earliest. This is to reflect continued support for the Energy Intensive Industries (EII) Compensation Scheme.
This government recognises that refineries play a role in energy security and the UK’s industrial base, and will publish a Call for Evidence on the fuel sector. The government is also considering the feasibility and impacts of including refined products in CBAM in future.
Technical changes have also been made to the legislation since the consultation. These changes include:
- the free allowance adjustment in the CBAM rate calculation will be based on a sectoral average of emissions covered by Free Allowances over a baseline period, adjusted annually to reflect the phase out of Free Allowances under the UK Emissions Trading Scheme
- carbon price relief has been extended to enable recognition of carbon prices incurred under carbon border adjustment mechanisms
- inclusion of an exemption for emissions embodied in UK-produced precursor goods, imported into the UK as part of a complex CBAM good. This will prevent a carbon price being paid twice on the same good, whilst reducing administrative burdens for businesses
- inclusion of an exemption for emissions embodied in CBAM goods under temporary admission in the UK, with a full relief from customs duties, to ensure CBAM only applies where goods enter the UK market and therefore present a carbon leakage risk
- time limit for repayment claims set at 3 years for customers who have made an error on their return and overpaid CBAM
- removal of the group treatment provision following feedback that group treatment provides limited benefits to businesses
The UK Parliament website includes the latest versions of Bills introduced to Parliament and associated documents. Please note that the primary legislation may change as a result of Parliamentary scrutiny.
Following the introduction of legislation in Finance Bill 2025 to 2026, HMRC will share draft secondary legislation and notices for technical consultation in early 2026.This will allow interested stakeholders to review the legislation and ensure it meets the policy intent.
HMRC will publish detailed guidance ahead of 2027, which we recognise will be essential for businesses to prepare for the introduction of the tax and meet the new requirements, effective from 1 January 2027. HMRC will work closely with key stakeholders to ensure the guidance is comprehensive and easy to understand in advance of publication.
More information about CBAM is available in the Policy update published in April 2025.
If you would like to join the CBAM mailing list to stay informed about policy developments, please email cbampolicyteam@hmrc.gov.uk.