Understanding CBAM: What UK & EU Businesses Need to Know

Climate policy is rapidly evolving, and one of the most significant changes on the horizon is the Carbon Border Adjustment Mechanism (CBAM) — a carbon pricing tool designed to support global decarbonisation and protect domestic industries from unfair competition. While the EU’s CBAM is already underway, the UK is introducing its own version, meaning businesses operating across both markets must prepare now to stay competitive and compliant.   

At its core, CBAM is a carbon tariff on high-emission imported goods, intended to ensure that products entering a market face the same carbon price as local producers. This levels the playing field — so that companies in regions with stronger climate regulations (like the EU and UK) aren’t undercut by imports from countries with weaker climate policies.   

In essence, CBAM: 

• Prices carbon emissions embedded in imported products, not just domestic production.
• Reduces carbon leakage, where production shifts to low-regulation regions before being imported back at higher overall emissions.
• Encourages cleaner global supply chains and investments in low-carbon technologies.   

The EU’s Carbon Border Adjustment Mechanism was legislated as part of the European Green Deal and entered force in 2023, with full implementation starting from January 2026.   

Under EU CBAM: 

• Importers of specific carbon-intensive goods — including steel, cement, aluminium, fertilisers, hydrogen and electricity — must report the greenhouse gas emissions embedded in those products.   
• From 2026 onwards, financial adjustments will be phased in, requiring importers to purchase CBAM certificates to cover the embedded carbon in goods.   
• The goal is to match the carbon price EU producers pay under the EU Emissions Trading System (ETS) with the treatment of imports, thereby discouraging carbon-intensive manufacturing outside the EU.   

What this means for UK exporters: 

Even though the UK has left the EU, British companies exporting to the EU will still need to provide emissions data about their products so that EU importers can comply with CBAM reporting and certificate requirements. 

The UK government has confirmed that it will introduce its own Carbon Border Adjustment Mechanism by January 2027.   

UK CBAM will: 

• Apply a carbon price on certain high-emission imports — including aluminium, cement, fertilisers, hydrogen and iron & steel — when those goods enter the UK market.   
• Be structured so that imported goods face a similar carbon cost to UK-produced goods under the UK Emissions Trading Scheme (UK ETS).   
• Require importers to register, report and potentially pay a carbon adjustment based on the embedded emissions of goods they bring into the UK.   

While some details are still being finalised, the principle mirrors the EU’s CBAM: no competitive disadvantage for domestic producers due to carbon pricing.   

Whether you trade in the UK, EU or both, CBAM has strategic implications: 

Here’s how companies can prepare now: 

1. Audit your emissions data — understand the carbon footprint of your products and supply chain.
2. Engage your suppliers — ensure they can provide verified carbon data for materials and components.
3. Integrate carbon reporting systems — invest in data collection and reporting tools that meet EU and UK standards.
4. Explore decarbonisation levers — from energy efficiency to alternative materials, reduce embedded emissions to lower CBAM exposure.
5. Plan for CBAM reporting & costs — build CBAM compliance into your operational and financial planning well before 2026/27. 

CBAM marks a major evolution in climate policy — one that stretches beyond national borders to reshape how global trade interacts with carbon accountability. Whether you’re exporting to the EU or importing into the UK, understanding and preparing for CBAM isn’t just about compliance — it’s about future-proofing your business, improving resilience and leading with sustainability.