UK CBAM Consultation: Building a Greener Global Economy

Our smartphones assembled in South Korea and cars manufactured in Germany hide a problem: carbon emissions don’t respect borders. The UK’s focus on reducing territorial emissions – the emissions released within our own borders – is well-intentioned but ignores the embedded carbon footprint of the goods we import. This approach fuels carbon leakage: the movement of production to countries with less stringent climate regulation. In turn, this undermines global climate goals and shifts pollution to the countries where our goods are made. 

This could all be about to change. Carbon Border Adjustment Mechanisms (CBAMs) could overhaul how we hold businesses responsible for their environmental impact, at least in terms of carbon emissions. By putting a price on the carbon embedded in imported goods, CBAMs aim to level the playing field for industries in countries with carbon pricing schemes, while incentivising cleaner production worldwide.  

At its core, a CBAM functions like a carbon tariff on imports from countries where environmental regulations may be less stringent. The UK CBAM will focus on emissions-intensive sectors like steel, cement, and fertilisers, aligning with our existing emissions trading scheme (ETS).  

Importers will need to accurately calculate and declare the carbon content of covered goods, potentially using default values provided by the government or actual emissions data from the manufacturing process. 

Importers will pay a CBAM levy based on the carbon content of the goods, designed to bridge the gap between the UK’s carbon price (through the ETS) and any carbon costs already paid in the country, or countries, of origin.  

The UK’s CBAM Opportunity 

The UK is currently consulting on introducing its own CBAM with a proposed implementation date of 1 January 2027. Although the EU’s pioneering CBAM demonstrates how a CBAM might work, the UK government’s consultation on the introduction of its own CBAM implementation offers a unique opportunity to shape our approach. This is a chance to protect UK industries by driving a global reduction in emissions. 

 The UK government’s CBAM consultation seeks to refine the design of this crucial mechanism, and input is needed on several key areas: 

• Scope: Which industries and products pose the greatest carbon leakage risk and should be targeted by the CBAM? 
• Calculations: How can businesses most accurately calculate embedded carbon, balancing data reliability with practicality? 
• Verification: What standards and processes will ensure accurate emissions reporting and minimise compliance risks? 
•  Alignment with global markets: How should the CBAM rate be calculated to reflect UK carbon pricing, and how can it fairly account for carbon costs in other countries? 
• Administrative ease: How can the CBAM be designed to minimise the burden on businesses while ensuring effectiveness? 

Keys to CBAM success

Businesses will need support navigating this new landscape. Chartered accountants, and other professionals, with expertise in emissions accounting, auditing, and strategic advice, will be crucial partners. They will assist with accurate embedded emissions calculations and compliance with declarations, provide robust auditing to ensure accurate reporting and minimise compliance risks, and help companies to identify CBAM-related risks, adjust supply chains, and develop long-term decarbonisation strategies to ensure and enhance competitiveness. 

The UK’s CBAM consultation is a call for businesses, government, and professionals to collaborate. By actively engaging in this process, we can help ensure the CBAM is effective, fair, and demonstrates the UK’s leadership in sustainable trade. 

This is a pivotal moment to transform how we address embedded emissions, fostering a truly global approach to tackling climate change. The UK CBAM can be a powerful tool, but its success depends on the insight and collaboration of those with the relevant expertise. ICAEW is working with members to shape CBAM policy development; we welcome all insights on our response to the UK’s consultation which ends on 13 June.