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March 22, 2024

UK | Consultation launched on proposed UK Carbon Border Adjustment Mechanism

On 21 March 2024, the United Kingdom (UK) Government published a "Consultation on the introduction of a UK carbon border adjustment mechanism (UK CBAM)" (the Consultation) asking for views on the design and administration of the new UK CBAM, which is expected to apply from 1 January 2027.

As currently proposed, the UK CBAM will apply to imports of certain carbon-intensive imported goods from the following sectors: aluminum; cement; ceramics; fertilizers; glass; hydrogen; and iron and steel.

The Consultation closes on 13 June 2024.

The UK Consultation in further detail

The UK CBAM will place a carbon levy on some of the most emissions-intensive industrial goods imported into the UK that are at risk of carbon leakage, ensuring that a carbon price is paid regardless of where the goods are produced.

The following chapters in the Consultation document set out what the Government is consulting on and include specific questions on a range of issues:

  • Chapter 5: Applying the UK CBAM — understanding which sectors and goods are in scope
  • Chapter 6: Calculating the UK CBAM liability — understanding how the liability for the CBAM will be calculated, including emissions reporting, default values, the UK's carbon price and adjustments for carbon prices applicable overseas
  • Chapter 7: Administration — payment and compliance of the UK CBAM

The key elements of the Consultation relate to:

What the CBAM will apply to: This includes sectoral and product scope, and exemptions. The UK Government has included a list of proposed Harmonized System (HS) codes covering aluminum, cement, ceramics, fertilizer, glass, hydrogen, iron and steel. The UK Government has said that only goods in scope of the UK Emissions Trading Scheme (UK ETS) if produced domestically and at risk of carbon leakage will be considered for potential inclusion within the scope of the UK CBAM.

How the CBAM liability will be calculated: The UK Government has invited comments on principles set out for the calculation of embodied emissions and consideration of the price of carbon paid oversees. A dual approach will be used for determining emissions embodied within imported goods, using either:

  • Default values
  • Data on the actual emissions embodied within CBAM goods

The UK Government's current stance is that the default values would be valid for at least an initial period of 2027–2030.

How the CBAM will operate: Questions in this section relate to the administration of, payment to and compliance with the UK CBAM regime. The main points of consideration include a higher threshold to register under the UK CBAM regime than the EU CBAM but the same quarterly declaration schedule from 2028 onward. The first UK CBAM payment would be due in May 2028.

Response to the Consultation

EY tax and trade professionals will be engaging throughout the consultation period with the Government departments responsible for carbon leakage (His Majesty's Revenue and Customs (HMRC), HM Treasury, the Department for Business and Trade, and the Department for Energy Security and Net Zero) and we will respond formally to the Consultation.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United Kingdom)

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor