Preparing your business for UK CBAM

In May,  regulations would affect the fastenings industry in the UK and Europe.

Since then, there has been a significant shift in the CBAM landscape. The UK Government is set to implement its own version of the CBAM, which will be effective from 1 January 2027, without a transitional period as there is for the EU CBAM.

We’ve reviewed the UK government’s fact sheet to provide key information about  UK CBAM.

Why is the UK Government introducing UK CBAM?

The UK government’s decision to introduce UK CBAM is a strategic move to tackle carbon leakage in the manufacturing and movement of carbon-intensive goods imported into the UK.

The UK CBAM will contribute to ambitious targets to reduce emissions by 68% from 1990 levels by 2030, en route to net zero by 2050.

Which sectors will the UK CBAM affect?

The UK CBAM applies to the most emissions-intensive industrial goods imported to the UK. Expanding beyond the EU’s framework, it also includes sectors like glass and ceramics. The full list is:

• Iron
• Steel
• Aluminium
• Hydrogen
• Cement
• Fertiliser
• Glass
• Ceramics

This wider scope will affect more of our customers, opening up liability to bathroom manufacturers as well as fixings and fasteners providers, and builders merchants.

Tom Reynolds from the Bathroom Manufacturers Association thinks it’s important to start preparing for CBAM now, “The inclusion of glass and ceramics in UK CBAM means it will have a significant impact on bathroom manufacturers. Preparing now will save stress and potential penalties further down the line. We’ll be updating our members as more information becomes available.”

What is UK CBAM?

HMRC and HM Treasury started a consultation of businesses, traders, and affected stakeholders in April, which closed on 13 June 2024, regarding the proposed design and administration of CBAM.

Understanding the UK CBAM

As we await the consultation results, we know it will follow the same principles as the EU CBAM.

Here’s what we know so far.

Liability and pricing

1. The liability applied by the CBAM will depend on the imported good’s intensity of greenhouse gas emissions and the gap between the carbon price used in the country of origin (if any) and the carbon price that would have been applied had the goods been produced in the UK.
2. CBAM liability will lie directly with the importer of imported products, based on emissions embodied in imported goods. This won’t require purchasing or trading of emissions certificates.
3. The UK CBAM will apply an effective carbon price (the price paid by producers after accounting for the impact of free allowances and other support mechanisms) to imports that is significantly lower than the headline explicit UK Emissions Trading Scheme (UK ETS) price, to reflect domestic free allowances. 
4. The price applied to CBAM will be based on the explicit carbon price differential between the UK and the production country.
5. The government will consult more on the criteria for global carbon prices to be recognised by the UK CBAM.

Customs controls and registrations

CBAM liability comes into effect depending on whether goods are subject to customs controls, which also decides who needs to register for and submit returns:

• If items are subject to customs controls, the importer or owner is liable. Liability is effective on the date the goods are released into free circulation.
• If items are not subject to customs controls, the person for whom the goods are moved to the UK is liable. Liability is effective on the date the goods enter the UK.

What are the emissions scope categories, and which will apply for a UK CBAM?

UK CBAM will be applied to Scope 1 and 2 emissions and select precursor product emissions embodied in imported products to ensure comparable coverage with the UK Emissions Trading Scheme.

• Scope 1 emissions relate to direct activities owned or controlled by the manufacturing organisation associated with producing goods.
• Scope 2 emissions come from indirect emissions not directly controlled by the product manufacturers, such as consumed and purchased electricity, heat, steam and cooling.  

What is the registration threshold for the UK CBAM?

The minimum threshold for CBAM will be £10,000. Two tests will determine if the threshold has been met or exceeded.

• With the forward-looking test (Test 1), traders should register for CBAM if they expect the value of CBAM goods to exceed the £10,000 limit in the next 30 days.
• With the historic test (Test 2), traders should register for CBAM if the value of CBAM goods exceeded the £10,000 limit in the previous 12-month rolling period.

The effective registration date will either be the day the threshold is expected to have been met or exceeded (Test 1) or the date the goods met the threshold (Test 2). Businesses will have 30 days to notify HMRC.

Submitting CBAM returns

Online CBAM returns must be submitted at the end of the accounting period, which is aligned with the UK’s calendar year. The first accounting period will last 12 months until 31 December 2027, and the first return must be submitted by 31 May 2028.

Following this, there will be fixed quarterly accounting periods:

*There will be a 30 June deadline in 2028 to ensure that this doesn’t coincide with the deadline for the first CBAM return.

Non-compliance

CBAM penalties for late submission of returns and late payments will likely be aligned with the penalty points system recently introduced for VAT.

Where CBAM liability applies, CBAM-related paper or digital records must be kept for six years. These could be invoices and carbon price and emissions information. Failure to keep records and general non-compliance, such as late registration and failure to provide information, will result in penalties.

Criminal offences will apply to those knowingly involved in fraudulent CBAM evasion.

What is the UK CBAM rate?

The UK CBAM rate will apply per tonne of embodied emissions attributed to the CBAM goods. This rate will vary by sector and will be published at the start of each CBAM quarter to allow alignment with the UK ETS market price.

After accounting for adjustments, exemptions, and free allowances, the UK CBAM rate will be comparable to the carbon price paid by UK producers.

Any changes in existing carbon pricing and adjustment policies will be reflected in the UK CBAM rate.

Preparing for the UK CBAM’s impact

What do I do if the UK CBAM affects me?

• Review the consultation document. While it’s too late to respond, it will help you understand the process and prepare for what’s coming.
• Read the government’s fact sheet to understand the impact on your business, the designation of responsibility, and your reporting obligations.
• Start engaging with your suppliers early to plan how to gather emissions data. Being proactive will put you in control of the situation.

A proactive approach to adapting to UK CBAM will not only reduce operational risks but also strategically position businesses in a carbon-conscious economy. By preparing now and staying informed about developments, businesses can effectively navigate challenges and seize opportunities arising from these regulatory changes.

Contact us to explore how EazyStock can help streamline your inventory management amidst changing regulatory landscapes like the UK CBAM.