Carbon Border Adjustment Mechanism (CBAM) Compliance

The EU CBAM impacts any businesses that import CBAM goods into the EU. The reporting obligation will stand if the UK business acts as an importer in its name in the EU.

The CBAM initially applies to imports of goods in the following sectors:

• Cement
• Iron and Steel
• Aluminium
• Fertilisers
• Hydrogen
• Electricity

These sectors were initially chosen due to their high risk of carbon leakage.

The EU CBAM Regulation applies to CN codes (Combined Nomenclature), an EU eight-digit coding system used to help the EU’s common customs tariff and provides statistics for trade within the EU and around the world. The list of goods that must be reported can be found in Annex I of the CBAM Regulation.

Reporting of embedded emissions in CBAM goods is compulsory during the transitional period. Reporting declarants may face penalties ranging between EUR 10 and EUR 50 per tonne of unreported emissions, underscoring the seriousness of non compliance.

In the case of missing, incorrect, or incomplete CBAM reports, the National Competent Authority (NCA) may initiate a correction procedure, granting reporting declarants the possibility to rectify potential errors. If the reporting declarant does not take this action, penalties will follow.

Each EU member state has a National Competent Authority (NCA) that is responsible for checking the quality of the quarterly CBAM reports that companies within their respective states submit.

NCAs will engage with reporting declarants in their respective states, creating a dialogue to try and resolve any issues surrounding CBAM reporting submissions.

NCAs ensure that reporting declarants in their member state comply with CBAM rules and will enforce penalties for non compliance.

On 22 December 2023, The European Commission published default values that can be used by businesses to determine their embedded emissions in imported goods covered by CBAM during the transitional phase.

Default reporting values are particularly important during the transitional period as importers may not have all the necessary information to complete their CBAM reports accurately.

During the first three quarterly reports (Q4 of 2023 and Q1&Q2 of 2024), declarants may report their embedded emissions based on default values supplied by the European Commission without quantitative limit.

Moving forward from Q3 of 2024 up until the end of the transitional period at the end of 2025, declarants can report emissions based on estimations but only for complex goods and with a limit of 20% of the total embedded emissions.

The EU aims to set the default values higher than the average actual value to create an incentive for declarants to use actual values.

No, the EU CBAM (Carbon Border Adjustment Mechanism) does not currently cover finished goods. It only applies to certain basic materials and basic material goods that have high carbon emissions in their production. Precursor materials such as aluminium sheets or stainless steel are covered but finished goods including automobiles, packaged consumer electronics, cookware, and machinery are exempt.

That being said, the European Commission may extend CBAM to cover finished products in later phases.

The de minimis exemption applies to consignments in which the total intrinsic value of the CBAM goods does not exceed EUR 150. If the overall value of the total CBAM goods in one consignment is below EUR 150, then the de minimis exemption applies and there is no CBAM obligation.

The European Commission proposed to simplify CBAM as part of its Omnibus packages announced in February 2025. These changes may include:

• A de minimis threshold exemption of 50 tonnes will focus the regulation on big importers and relieve small importers, such as SMEs and individuals, of the regulatory burden.
• Easier compliance criterion for CBAM obligations, including simplified declarant authorisation, emissions calculations and the management of financial liability, will streamline third-party outsourcing.
• Stronger anti-abuse provisions and joint strategies with national authorities will ensure that big importers comply with the regulation.

The UK CBAM is set to come into effect on 1 January 2027. The legislation will be open for technical consultation from 24 April 2025 to 3 July 2025, after which the government will review it in accordance with its new EU deal ahead of its official introduction later this year. A full list of the obligated commodity codes included in the draft is available on the government website.

Yes, there are some notable differences between the UK and EU CBAM regulations, although these may change as the UK and EU link their Carbon Schemes as part of their new collaborative deal. As the regulations stand, the notable differences between the UK and the EU are the following:

• No transitional period: financial obligations will start in 2027, leaving UK-importers with little time to prepare for the scheme in stark contrast to its European counterpart.
• A different obligation threshold: UK companies with an import value over £50,000 in the twelve months prior, or with an expected import value exceeding £50,000 over the next thirty days, at any point from 1st January 2027, will be obligated. In contrast, companies with an import value of 150 euros are obligated in the EU, with a proposal to increase the threshold to 50 tonnes in 2026.
• Different obligated commodity codes: electricity will be excluded from the UK CBAM but glass and ceramics will be included in an effort to account for more carbon-intensive imports.
• Different carbon prices: UK carbon prices are expected to be lower than EU carbon prices as they reflect quarterly UK ETS and CPS pricing.