The implementation of the European Union's (EU) Carbon Border Adjustment Mechanism (CBAM) on the 17th of May 2023 has brought about a transformative shift for businesses involved in imports to the EU. This holds considerable implications for UK businesses engaged in exports to the EU, as they deal with the complexities of CBAM compliance.
Understanding CBAM
CBAM functions as a clear and fair policy, applying a carbon price to imported goods without discrimination. The carbon content of these goods is determined using established methods aligned with EU emission accounting standards. Subsequently, a carbon price is applied, set by the EU, and based on the current cost of carbon allowances in the EU Emissions Trading System. Importers are obligated to settle this carbon price directly or through the procurement of carbon allowances. For more information about EU CBAM, check our blog here
UK CBAM Announcement - Following in the EU’s footsteps, on 18 December 2023, the UK Government announced the adoption of a UK Carbon Border Adjustment Mechanism (UK CBAM) by 2027. As the EU CBAM, the UK equivalent is expected to impose a tariff on imports of emission-intensive products. This tariff will be based on the embedded emissions of the imported goods. The UK CBAM will function as a customs-oriented regime, placing liability on the importer of record for products falling within its scope.
According to UK’s Parliament’s Environmental Audit Committee (EAC) Chairman, Phillip Dune, ‘“Imports to the UK make up 43% of the UK’s consumption emissions. These must be tackled, or the UK's efforts to decarbonise will be undercut. Applying an appropriate carbon price at the border will go a long way towards closing carbon loopholes.”
Strategic Steps for Enterprises - While the details of the UK CBAM are pending finalisation, businesses can initiate preparatory steps, drawing lessons from EU CBAM preparations. To effectively navigate the CBAM landscape, businesses are recommended to:
Conduct a Carbon Footprint Assessment: Identify areas where emissions can be reduced.
Harmonise Data Collection: For businesses dealing with both EU and UK CBAM, consider aligning data collection processes.
Assign Internal Responsibility: Nominate a team responsible for managing UK CBAM preparations.
Invest in Sustainability: Allocate resources to adopt sustainable practices, technologies, and energy-efficient processes.
Optimise Supply Chains: Minimise carbon-intensive components and sources in the supply chain.
Monitor Legislative Developments: Stay abreast of legislative changes and respond to relevant consultations.
Market Differentiation: Leverage sustainability as a marketing tool to appeal to environmentally conscious consumers.
Develop Engagement Strategies: Engage with the UK Government, determine business priorities, and actively participate in future consultations.
As the world moves towards sustainability, businesses need to adapt to changing rules, like the new CBAM regulation.
Is your UK-based business dealing with the impact of the new EU and UK CBAM regulation?
Need supporting understanding about the new carbon border adjustment mechanisms being introduced by the EU and UK? Simply email us at exportbritain@gmchamber.co.uk or arrange a complimentary session with one of our Trade & Customs Advisers here.