How the EU's Carbon Tax Affects UK Exporters

As of January 1, 2025, the European Union's Carbon Border Adjustment Mechanism (CBAM) enters a critical phase, impacting UK businesses engaged in importing and exporting carbon-intensive products to the EU. This mechanism aims to level the playing field by imposing carbon costs on imports equivalent to those faced by EU producers under the EU Emissions Trading System (ETS). For UK businesses, understanding CBAM's challenges and benefits is essential to navigate the evolving trade landscape effectively.  

CBAM is designed to prevent 'carbon leakage’, where production shifts to countries with less stringent climate policies, undermining global emission reduction efforts. It requires importers of certain goods—such as steel, aluminium, cement, fertilisers, electricity, and hydrogen—to report embedded emissions and, from 2026, purchase CBAM certificates reflecting the carbon price differential between the EU and the exporting country. ​  

1. Data Collection and Reporting: UK exporters must provide detailed emissions data, including direct and indirect emissions, production methods, and origin details. Inaccurate or incomplete data may lead to default values being applied, potentially increasing costs. 
   
   
2. Financial Implications: From 2026, the cost of CBAM certificates will directly affect the pricing of exported goods. Industries like steel, where 75% of UK steel exports goes to the EU, could face significant financial burdens. 
   
   
3. Regulatory Uncertainty: The UK's own CBAM is planned for 2027, but differences in scope and implementation timelines between the UK and EU systems may create compliance complexities.  

1. Incentivising Decarbonisation: CBAM encourages UK businesses to invest in cleaner technologies and processes, potentially leading to long-term cost savings and environmental benefits.​ 
   
   
2. Market Competitiveness: Aligning with EU carbon pricing can enhance the competitiveness of UK products in the EU market by ensuring fair competition with EU producers.  
   
   
3. Strategic Positioning: Early adaptation to CBAM requirements positions UK businesses as leaders in sustainable trade practices, potentially opening new markets and opportunities.​ 

• Steel and Aluminium: High carbon intensity and significant export volumes to the EU make these sectors particularly vulnerable to CBAM-related costs. 
  
  
• Cement and Fertilisers: Similar to metals, these industries face challenges due to their carbon-intensive production processes and reliance on EU markets.
  
  
• Electricity and Hydrogen: Despite being clean energy sources, exports may still incur CBAM charges based on the carbon intensity of the UK's overall energy grid. 

• Financial Penalties - The EU has built strict enforcement mechanisms into CBAM. Failure to submit the required CBAM reports or fail to purchase and surrender CBAM certificates will face monetary penalties. The level of these fines is dependent on the extent and duration of non-compliance. 
  
  
• Denial of import clearance - If a company fails to comply, the EU may block the clearance of affected goods at the border. Customs authorities can refuse entry of shipments that are not accompanied by compliant CBAM documentation. This could result in costly delays, storage fees, and damaged client relationships. 
  
  
• Reputational Damage - Non-compliance could harm a company’s brand such as: creditability with customers, suppliers, and investors.
  
  
• Default values = higher costs. If an importer cannot provide verified emissions data, the EU will apply default values to calculate embedded emissions. These values are: 
  • Deliberately conservative, meaning they often overestimate emissions.
  • Resulting in higher costs through the purchase of more CBAM certificates than may have been necessary with accurate information. 
    
    
• Criminal or legal consequences (for serious or repeated breaches) Although most penalties are administrative, severe or repeated violations could:
  • Trigger legal scrutiny under customs or environmental law. 
  • Result in court actions or more substantial enforcement for fraudulent reporting or evasion. 

CBAM will be introduced in two stages: 

1. Transition period from October 2023 to the end of 2025 - During this time, importers will have to submit quarterly reports, but they will not have to pay anything yet. The aim is to collect data and prepare the systems. 
   
   
2. Full implementation from January 2026 - This is when CBAM certificates will start to be required. Importers will have to purchase and submit certificates corresponding to the emissions caused by their goods. 

If you import goods covered by CBAM, you need to:

• Register as a reporter with the competent authority 
• Ensure that you receive information on CO2 emissions from your suppliers 
• Submit quarterly reports with emissions data (during the transition period) 
• From 2026: Buy CBAM certificates and pay according to emission levels 

It is therefore important to start preparing now, both technically, internally and in your contacts with suppliers. 

• Review your customs management and import documentation systems  
• Follow updates from Customs and the European Commission  
• Consider whether there is a need for external support 

The EU's CBAM represents a significant shift in international trade, emphasising the importance of carbon accountability. While it poses challenges for UK importers and exporters, particularly in carbon-intensive sectors, it also offers opportunities for innovation and leadership in sustainable practices. Proactive engagement, investment in cleaner technologies, and alignment with EU standards will be crucial for UK businesses to thrive in this new regulatory environment.​