Navigating the UK Carbon Border Adjustment Mechanism (CBAM)

Since 2023, an integrated team of sustainability consultants and economic analysts at Talan have been supporting companies worldwide in understanding and complying with the EU Carbon Border Adjustment Mechanism (CBAM). Our work has included assessing the financial and operational implications, ensuring supply chain resilience, and advising on strategic responses. While the UK CBAM is still in development, we have been helping businesses interpret the regulation to prepare their strategies ahead of its implementation. 

A brief summary of CBAM (EU & UK) 

The CBAM is a critical element in the EU’s strategy to achieve its ambitious goal of reducing greenhouse gas emissions by at least 55% by 2030. It is being introduced gradually and aligns with the phasing out of free allowances under the EU Emissions Trading System (ETS). Initially covering categories such as cement, aluminium, iron & steel, fertilisers, electricity and hydrogen, CBAM aims to ensure that companies cannot sidestep EU climate policies by relocation production to regions with less stringent environmental regulations. 

EU CBAM regulation has been introduced in two phases: The Transitional Phase (October 2023 – December 2025) and the Definitive Phase (from January 2026*). 

The UK is following suit, with its own CBAM set to come into force in January 2027. Like the EU’s, the UK CBAM aims to level the playing field by applying a levy to imported goods based on their carbon emissions. However, concerns have been raised about the delayed implementation, as the EU’s mechanism will be fully operational a year earlier. This could leave the UK exposed to high-carbon imports in the interim, prompting calls for better alignment between the two systems. 

The 2027 start date for UK CBAM provides a window for businesses to get CBAM-ready. Companies that act now can avoid unnecessary costs and disruptions. Our Sustainability and Economics team has been actively discussing and analysing these regulations with key stakeholders as well as investigating the feasibility of various strategic scenarios. From this a few key insights on UK CBAM for businesses are as follows: 

• Managing Costs and Compliance
• Staying Competitive in the EU 

For UK Importers: Managing Costs and Compliance

• Work with suppliers to decarbonise: Investing in cleaner production now can reduce future CBAM liabilities. 
• Track global carbon tax developments: Imports from countries with their own carbon pricing may be more competitive than those from nations without. 
• Explore low-carbon alternatives: For example, replacing traditional steel with green steel could significantly cut emissions and costs. 
• Invest in staff training: Understanding the administrative and reporting requirements now will help avoid compliance headaches later. 

For UK Exporters: Staying Competitive in the EU 

• Cut carbon emissions to maintain EU market share: With UK carbon prices significantly lower than the EU’s (~€70 vs. £44.55 as of March 2025), UK exporter’s products could face steep CBAM fees when selling into the EU. EU customers may opt for domestic suppliers to avoid additional costs and customs complications. 
• Engage with policymakers: Some industry groups are pushing for UK-EU ETS alignment to reduce trade friction. Businesses should stay informed and contribute to discussions. 
• Monitor CBAM price adjustments: UK CBAM rates are expected to be based on the UK ETS price, adjusted for free allowances. Understanding these shifts will be key to pricing strategies. 

The CBAM regulation is still being finalised, and we recognise many questions and loopholes yet to be solved. We provide support to businesses to stay engaged and proactive, and to future-proof supply chains which has the potential of bringing both economic and environmental benefits. 

*Following the release of the proposed omnibus package, we note that, whilst the definitive period will begin in January 2026, importers will need to purchase certificates in February 2027 to cover the previous year. From February 2027 onwards, certificates will need to be purchased on a quarterly basis.