Last Updated: 07/07/26
With the introduction of Carbon Border Adjustment Mechanisms (CBAMs), businesses importing carbon-intensive goods into major markets will increasingly need to account for the emissions embedded within their supply chains.
This article explores what CBAM is, why it has been introduced and the key differences between the UK and EU regimes.
EU CBAM is already in its definitive phase, with UK CBAM due to come into effect from 1st January 2027.
Although the UK regime is expected to broadly mirror EU CBAM in its underlying objective and in several core design features, including the focus on embodied emissions in carbon-intensive imports, it will operate as a separate UK tax administered by HMRC. Businesses trading across both markets should therefore prepare for two aligned but distinct regulatory regimes, particularly in relation to timing, administration, reporting processes, product scope and carbon pricing methodology.
What is CBAM?
CBAM is a carbon pricing framework designed to prevent carbon leakage by ensuring imported carbon-intensive goods face a comparable carbon cost to domestic production.
The goal is to create a level playing field between domestic manufacturers that face carbon pricing and overseas producers that may not.
CBAM is not just a reporting exercise; it is a supply-chain, data and cost challenge that requires early preparation.
EU CBAM vs UK CBAM: what are the differences?
Many organisations will need to comply with both schemes, often for the same goods moving through different markets.
Although they both serve the same purpose, there are several key differences between UK and EU CBAM:
Tax-based vs certificate-based approach
One of the most important differences is how the schemes are administered. EU CBAM operates through a certificate-based system, requiring importers to purchase and surrender CBAM certificates that reflect the embedded emissions in imported goods.
UK CBAM will instead operate as a tax-based system, with businesses declaring and paying CBAM liability through an HMRC-administered return process.
Different implementation timelines
EU CBAM entered its definitive phase on 1st January 2026, with financial obligations applying to 2026 imports through the purchase and surrender of CBAM certificates. UK CBAM isn’t set to go live until 1st January 2027, giving businesses additional time to prepare for data collection and reporting.
Product scope differences
While both schemes focus on carbon-intensive sectors such as iron and steel, aluminium, cement, fertilisers and hydrogen, there are differences in coverage. Notably, electricity imports are included within EU CBAM but are not expected to be covered by UK CBAM initially.
Different reporting and compliance requirements
The EU and UK have adopted separate reporting structures and administrative processes. Businesses trading across both the UK and the EU will need to understand and comply with the requirements of each scheme individually.
Different de minimis thresholds
The mechanisms also differ in how exemptions are applied. EU CBAM uses a threshold linked to import quantities, whereas UK CBAM proposes a value-based threshold of £50,000. This means businesses may find themselves exempt under one regime while still being subject to obligations under the other.
Carbon pricing methodology
Although both schemes seek to equalise carbon costs between domestic and imported goods, they use different methodologies. EU CBAM is linked directly to the EU ETS. UK CBAM will apply a Government-set CBAM rate designed to reflect the carbon cost faced by UK producers under the UK ETS (taking account of free allocation), with any qualifying explicit carbon price already paid overseas deducted when calculating the final CBAM liability.
What this means for businesses
The listed differences between UK and EU CBAM increase the complexity of cross-border trade, requiring businesses operating across both markets to understand and comply with two distinct regulatory frameworks.
From an operational perspective, businesses will need to navigate two separate CBAM frameworks. For businesses importing into both the UK and EU, this means they’ll have to manage different reporting schedules, administrative processes, pricing methodologies and potentially different verification requirements. This can be
particularly difficult to manage for small to medium-sized companies that lack resources and time.
Data collection is likely to become one of the most significant challenges. Both UK and EU CBAM rely on accurate emissions data from across the supply chain, meaning businesses will need to work closely with suppliers to obtain reliable information on the carbon intensity of imported goods.
How McGrady Clarke Can Help
McGrady Clarke supports organisations across both EU and UK CBAM, helping clients move from uncertainty to confident compliance.
Our CBAM services include:
- Confirming CBAM obligations and scope, and in-scope goods
- Mapping complex international supply chains
- Supporting supplier engagement and data collection
- Calculating embedded emissions
- Preparing CBAM-aligned reporting outputs
- Advising on submission, payment and ongoing compliance
Beyond compliance, we help organisations use CBAM insights to reduce exposure to default values, improve supply-chain transparency and support wider decarbonisation strategies.
Contact our team today for support.
Frequently asked questions
What is the difference between UK CBAM and EU CBAM?
The main difference is how each scheme operates. EU CBAM uses a certificate-based system linked to the EU Emissions Trading System (EU ETS), while UK CBAM will operate as a tax administered by HMRC. The two schemes also differ in their implementation dates, product scope, reporting requirements, exemption thresholds and carbon pricing methodologies.
When does UK CBAM come into effect?
UK CBAM is due to come into effect on 1st January 2027. From this date, eligible UK importers of certain carbon-intensive goods may be required to report and pay a CBAM liability.
Do businesses trading with both the UK and the EU need to comply with both CBAM schemes?
Potentially, yes. Businesses importing in-scope goods into both the UK and EU may need to comply with each regime separately. Although the schemes share similar objectives, they have different reporting processes, compliance requirements and payment mechanisms.
How should businesses prepare for UK and the EU CBAM?
Businesses should identify whether they import in-scope goods, assess which CBAM regimes apply to them, engage suppliers to obtain reliable emissions data, and establish processes for reporting and ongoing compliance. Starting preparations early can help reduce compliance risks and improve supply-chain transparency.
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