Policy paper

Carbon Border Adjustment Mechanism

Published 26 November 2025

Who is likely to be affected 

Businesses who import £50,000 or more of specified goods from the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors over a 12 month period will be directly impacted, while businesses that use these goods in their supply chain will be indirectly impacted. Overseas businesses that produce these goods for supply to the UK will also be affected where they choose to supply information about the embodied emissions within the goods or about the carbon prices the goods were subject to when they were produced. 

General description of the measure 

The carbon border adjustment mechanism (CBAM) is a new tax which will ensure that highly traded, carbon intensive goods which are imported into the UK face a comparable carbon price to that paid by manufacturers producing the same goods in the UK. In the UK, for direct emissions, manufacturers can be subject to carbon pricing under the UK Emissions Trading Scheme (ETS). 

CBAM will apply from 1 January 2027 to goods from the following industrial sectors: 

• aluminium 
• cement 
• fertiliser 
• hydrogen 
• iron and steel 

Policy objective 

CBAM is designed to ensure that UK decarbonisation policy encourages a true reduction in global emissions by mitigating carbon leakage. Carbon leakage is the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing.  

CBAM is expected to reduce the risk of carbon leakage for UK producers of iron and steel, aluminium, cement, hydrogen and fertiliser by ensuring that importers face a comparable carbon price to that paid in the UK by those producing the same goods, so that UK decarbonisation efforts lead to a true reduction in global emissions rather than simply displacing carbon emissions overseas. It will give UK industry confidence to invest in the knowledge that its decarbonisation efforts will not be undermined and the introduction of CBAM legislation will support this. UK producers have called for the introduction of a CBAM.     

The tax rates for CBAM will be calculated by reference to the costs incurred by UK producers under the UK ETS after adjusting for any free allowances or discounts received. 

Background to the measure 

Between March 2023 and June 2023, a consultation was held on ‘Addressing carbon leakage risk to support decarbonisation’ and a response was published in December 2023, which confirmed the UK would introduce a CBAM. 

Between March 2024 and June 2024, a consultation was held on the ‘Introduction of a UK carbon border adjustment mechanism from January 2027’ on imports into the UK of certain carbon intensive goods. A response to the consultation was published in October 2024. This included key decisions on the design and scope of CBAM including the decision that CBAM will not apply to goods from the glass and ceramics sectors from January 2027 when the tax commences, as had previously been proposed.      

Finance Act 2025 included provision for HMRC to prepare for the introduction of CBAM. It also included provision to require the disclosure of certain information related to the UK ETS when requested by HM Treasury and HMRC, to help develop and operationalise CBAM. 

Between March 2025 and July 2025, a technical consultation was held on ‘Draft legislation: carbon border adjustment mechanism’. Alongside this consultation, the government published a policy update outlining decisions taken since the October 2024 consultation response.  This included confirmation of the frequency of accounting and payment periods and the information required on a return.  

As announced at Budget 2025, the  inclusion of indirect emissions associated with the production of CBAM goods will be not in scope of CBAM at its implementation on 1 January 2027. This is to reflect continued support for the Energy Intensive Industries (EII) Compensation Scheme.  

Other key changes to the primary legislation since the technical consultation  are set out on this page.  

Detailed proposal 

Operative date 

The tax will take effect from 1 January 2027. 

Current law  

This is new legislation to establish CBAM.   

Proposed revisions 

This legislation sets out the key features of CBAM including: 

• the sectors and products in scope of CBAM by reference to the specific commodity codes of those goods, referred to as CBAM goods 

• provisions to allow the emissions scope of CBAM to be set in delegated legislation  

• the minimum registration threshold which will be set at a value of £50,000 of CBAM goods imported into the UK over a given period of time  

• how CBAM rates will be determined, by reference to domestic carbon pricing measures – the ETS, including free allowances 

• provisions that will allow importers to use actual verified emissions data or a default emissions value to determine the emissions embodied in imported CBAM goods 

• provisions that will allow importers to have their CBAM liability reduced where emissions embodied in the imported CBAM good have been subject to a qualifying carbon price and the liable person holds the relevant evidence  

• provision allowing for an exemption from CBAM for goods originating in a country with an ETS linked to the UK ETS 

• provision to ensure that emissions embodied in imported CBAM goods, but which were originally produced in the UK, are not captured by CBAM 

• flexibility to allow the government to implement international agreements or arrangements that would help reduce administrative burdens in relation to aspects of the tax 

• provision determining that the person liable for CBAM, who will need to register with HMRC, submit returns and pay any tax due, will be the person responsible for importing CBAM goods (or on whose behalf they were imported) for commercial purposes into the UK 

• provisions determining when the CBAM charge arises and how the charge is to be calculated where special customs procedures apply 

• other administrative provisions including how the tax will be collected and enforced 

Summary of impacts 

Exchequer impact (£ million) 

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
—	+30	+140	+180	+175	+155

This measure combines measures from Autumn Budget 2024 Carbon Border Adjustment Mechanism (CBAM): introduce from January 2027 which is set out in Table 4.2 of Budget 2025, and Carbon Border Adjustment Mechanism: Remove indirect emissions from scope of the CBAM from 1 January 2027 which is set out in Table 4.1 of Budget 2025 and have been certified by the Office for Budget Responsibility.

Macroeconomic impact

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

This measure is not expected to have a significant impact on prices for individuals, households, and families. CBAM goods are predominantly basic materials and intermediary goods, rather than final consumer goods. Anyone importing CBAM goods for non-commercial purposes will not be liable for CBAM. 

CBAM is expected to have limited negative impacts on importers and users of CBAM goods, and individuals they employ. 

CBAM is not expected to impact family formation, stability, or breakdown. 

Equalities impacts  

CBAM is expected to have limited impacts on importers and users of CBAM goods, and individuals they employ. This measure is not expected to have a significant impact on groups sharing protected characteristics. However, where a protected group is overrepresented in importers and users of CBAM goods, they are more likely to be impacted by this measure. Protected characteristic breakdowns for individuals working in sectors likely to be impacted by the measure are provided below. 

Males are estimated to be overrepresented in the sectors affected by this measure, making up around 81% of the population compared to around 50% of UK adults. Individuals of typical working age (25-64) are estimated to be overrepresented in the sectors affected by this measure (83%) compared to the UK adult population (66%). Individuals from a White ethnic background (93%) are estimated to be overrepresented in these sectors compared the UK adult population (86%). 

Where data were available, no other protected characteristic group was estimated to be overrepresented in the population affected by this measure.

Administrative impact on business including civil society organisations

CBAM will have a significant impact on an estimated 10,000 businesses importing CBAM goods into the UK. The high-level design and implementation of the tax has been subject to extensive consultation: information from this consultation and the government’s continued engagement with stakeholders has been used to gain a better understanding of these impacts. Further details of these impacts will be set out alongside future secondary legislation. 

There will be one-off costs to businesses to familiarise themselves with the requirements, train staff and set up new systems, as well as ongoing costs to businesses to collate and report information about the goods they have imported to HMRC.   

Overseas businesses exporting to the UK may face increased administrative costs in the event that they have their emissions and information relevant for carbon price relief verified. They may then pass on these administrative costs to importers of CBAM goods to the UK. However providing verified information may also enable a reduced CBAM liability. These administrative costs are likely to be lower for imports from countries which already have a carbon pricing system and so are likely to already have an infrastructure to measure emissions, albeit at an installation rather than product level. It is estimated that 80% of CBAM goods imported into the UK are exported mostly from countries which already have a carbon pricing system. Administrative costs have also been partially mitigated by allowing businesses to use default emissions values for reporting on the emissions embodied within their CBAM goods.  

Small and medium sized enterprises (SMEs) may also face higher administrative costs proportionate to their level of imports relative to larger importers. However, to mitigate against disproportionate administrative burdens relative to the carbon leakage risk CBAM seeks to address, only those importing CBAM goods with a value of £50,000 or more over a given period of time (determined by whether the forward looking or backward looking test is applied) will be required to register, submit returns, and will be liable for CBAM. HMRC estimate that over 80% of otherwise affected importers will be excluded from CBAM altogether. Of those removed by this threshold, over 70% are SMEs. 

This measure is not expected to impact civil society organisations. 

Overall, this measure is expected to affect businesses’ experience of dealing with HMRC as this is a novel measure that will place new obligations on liable businesses, though this impact is likely to be greater in the early years of the tax’s operation as businesses familiarise themselves with the new obligations. 

Operational impact (£ million) (HMRC or other) 

HMRC will require additional funding to deliver this measure. It expects to incur one-off capital costs with an initial estimate of around £24 million for developing a new IT system for registering businesses and accounting for CBAM. There will also be ongoing resource costs for HMRC to implement this change, monitor compliance and meet customer service needs. Its resource costs (including ongoing compliance costs) are estimated at £31 million between 2023 and 2031. HMRC will continue to keep these cost estimates under review. 

Other impacts 

A Justice Impact assessment is underway. Overall impacts are anticipated to be minimal. 

Environmental impacts 

CBAM is designed to mitigate the risk of carbon leakage by reducing the movement of UK production and associated emissions abroad for sectors within scope of the measure. This will support the effectiveness of UK decarbonisation efforts in CBAM sectors, and result in a true reduction to global emissions from UK carbon pricing and climate regulation. 

Trade impacts 

CBAM is expected to increase UK trade in CBAM sectors with regions which have less emissions intensive production or carbon pricing mechanisms. It may decrease trade in these sectors with regions which have emissions intensive production or no carbon pricing mechanisms. 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

Consideration will be given to evaluating the policy’s impact on mitigation of carbon leakage risk combining external research and HMRC administrative data. This will enable the government to keep the tax’s effectiveness under review after implementation. 

Further advice 

If you have any questions about this change, contact HMRC by email cbampolicyteam@hmrc.gov.uk.