Open consultation

Draft tax information and impact note

Published 24 April 2025

Who is likely to be affected

Businesses who import £50,000 or more of specified goods from the aluminium, cement, fertiliser, hydrogen, iron and steel sectors over a 12-month period will be directly impacted, while businesses that use these goods in their supply chain will be indirectly impacted. Overseas businesses that produce these goods for supply to the UK will also be affected where they choose to supply information about the embodied emissions within their goods or about the carbon prices already incurred in relation to their goods.

General description of the measure

The carbon border adjustment mechanism (CBAM) is a new tax which will ensure that highly traded, carbon intensive goods which are imported from overseas face a comparable carbon price to what is paid by manufacturers producing the same goods in the UK. In the UK, the 2 carbon pricing schemes that manufacturers incur are the UK Emissions Trading Scheme (ETS) and Carbon Price Support (CPS).

CBAM will apply from 1 January 2027 to goods from the following industrial sectors:

• aluminium
• cement
• fertiliser
• hydrogen
• iron and steel

Policy objective

CBAM is designed to ensure that UK decarbonisation policy encourages a true reduction in global emissions by mitigating carbon leakage. Carbon leakage is the movement of production and associated emissions from one country to another due to different levels of decarbonisation efforts through carbon pricing and climate regulation.

CBAM is expected to reduce the risk of carbon leakage for sectors within scope of the policy, by ensuring that importers face a comparable carbon price to that paid in the UK by those producing the same goods. CBAM rate will therefore be calculated by reference to the costs incurred by UK producers under the UK Emissions Trading Scheme and CPS after any free allowances or discounts received.

Background to the measure

Between March 2023 and June 2023, the previous government consulted on ‘Addressing carbon leakage risk to support decarbonisation’. The government response was published in December 2023 by the previous government, which confirmed the UK would introduce a CBAM.

Between March 2024 and June 2024, the previous government consulted on the ‘Introduction of a UK carbon border adjustment mechanism from January 2027’ on imports into the UK of certain carbon intensive goods. The government published its response to the consultation in October 2024. This included key decisions on the design and scope of CBAM including the decision that CBAM will not apply to goods from the glass and ceramics sectors from January 2027 when the tax commences, as had previously been proposed.     

The Finance Act 2025 includes provision for HMRC to prepare for the introduction of CBAM. It also includes provision to require the disclosure of certain information related to the UK Emissions Trading Scheme when requested by HM Treasury and HMRC, to help develop and operationalise CBAM.

Detailed proposal

Operative date

The tax will take effect from 1 January 2027.

Current law

This is new draft legislation to establish the CBAM.  

Proposed revisions

The government is publishing draft legislation for technical consultation which sets out the key features of CBAM, including:

• the sectors and products in scope of CBAM by reference to the specific commodity codes of the goods
• the emissions in scope of CBAM and therefore subject to the CBAM charge
• the minimum registration threshold which will be set at a value of £50,000 of CBAM goods imported into the UK over a given period of time (determined by whether the forward looking or backward looking test is applied)
• how CBAM rates will be determined, by reference to domestic pricing measures – the Emissions Trading Scheme, including free allowances, and the Carbon Price Support
• provisions that will allow importers to use actual verified emissions data or a default emissions value to determine the emissions embodied in the goods imported.
• the ability for an importer to have their CBAM liability reduced where the good has already been subject to a deductible carbon price which has been verified
• a provision allowing for an exemption from CBAM for goods originating in a country with a linked Emissions Trading Scheme
• provisions allowing the UK government to implement international agreements or arrangements that would help reduce administrative burdens in relation to aspects of the tax
• a provision determining that the person liable for CBAM, who will need to register with HMRC, submit returns and pay any tax due, will be the person responsible for importing CBAM goods (or on whose behalf they were imported) for commercial purposes into the UK
• provisions determining when the CBAM charge arises
• other administrative provisions including how the tax will be collected and enforced

Summary of impacts

Exchequer impact (£m)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
+0	+0	+50	+205	+240	+250

These figures have been certified by the Office for Budget Responsibility (OBR) and were included in the OBR’s Spring Statement 2025 forecast. More details on the costing methodology can be found in the Policy Costings document published alongside Spring Budget 2024.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure is not expected to have a significant impact on prices for individuals, households, and families. CBAM goods are predominantly basic materials and intermediary goods, rather than final consumer goods. Anyone importing CBAM goods for non-commercial purposes will not be liable for the CBAM.

CBAM is expected to have limited negative impacts on importers and users of CBAM goods, and individuals they employ.

CBAM is not expected to impact family formation, stability, or breakdown.

Equalities impacts

CBAM is expected to have limited negative impacts on importers and users of CBAM goods, and individuals they employ. Individuals from all protected groups are likely to be represented in these sectors. However, where a protected group is overrepresented, they are more likely to be impacted by this measure. Protected characteristic breakdowns for individuals working in sectors likely to be impacted by the measure are provided below.

Men are estimated to be overrepresented in the sectors affected by this measure, making up around 82% of the population compared to around 50% of UK adults. The age profile of this group is broadly comparable to the working age population. Individuals from a white ethnic background (94%) is estimated to be overrepresented in these sectors compared the UK working age population (86%).

Where data is available for other protected characteristics no other differences were found.

Impact on business including civil society organisations

CBAM will have an impact on an estimated 10,000 businesses importing CBAM goods into the UK. It is expected that the impact on businesses will be significant and the overall impact will depend on the detailed design of the tax. The high-level design and implementation of the tax has been subject to consultation and information from this and the government’s continued engagement with stakeholders will be used to gain a better understanding of these impacts.

There will be one off costs to businesses to familiarise themselves with the requirements as well as ongoing costs to businesses to collate and report information about the goods they have imported to HMRC at the end of each accounting period.  

Businesses that import from countries which do not currently measure emissions through a carbon pricing regime may experience larger administrative costs if they want to obtain and use verified emissions data. However, it is estimated that 80% of CBAM goods imported into the UK are exported mostly from countries which already have a carbon pricing system and so are likely to already have the infrastructure to report emissions, albeit at an installation rather than product level. The impacts of reporting requirements on businesses have been partially mitigated by the allowing businesses to use default emissions values for reporting on the emissions embodied within their CBAM goods.

Small and medium sized enterprises (SMEs) may also face higher administrative costs proportionate to their level of imports relative to larger producers. However, to mitigate against disproportionate administrative burdens relative to the carbon leakage risk CBAM seeks to address, only those importing CBAM goods with a value of £50,000 or more over a given period of time (determined by whether the forward looking or backward looking test is applied) will be required to register, submit returns, and will be liable for the CBAM. HMRC estimate that over 80% of otherwise affected importers will be excluded from CBAM altogether. Of those removed by this threshold, over 70% are SMEs.

This measure is not expected to impact civil society organisations.

Overall, this measure is expected to negatively affect businesses’ experience of dealing with HMRC as this is a novel measure that will place new obligations on liable businesses.

Operational impact (£m) (HMRC or other)

HMRC will require additional funding to deliver this measure. It expects to incur one-off capital costs of around £24 million for developing a new CBAM system for registering businesses and accounting for the CBAM. There will also be ongoing resource costs for HMRC to implement this change, monitor compliance and meet customer service needs. Its resource costs (including ongoing compliance costs) are estimated at £31 million between 2023 and 2031. HMRC will continue to keep these cost estimates under review.

There may also be extra costs incurred by the Ministry of Justice as a result of the introduction of CBAM, which will be quantified in due course.

Other impacts

Environmental impacts

CBAM is designed to mitigate the risk of carbon leakage by reducing the movement of UK production and associated emissions abroad for sectors within scope of the measure. This will support the effectiveness of UK decarbonisation efforts in CBAM sectors, and result in a true reduction to global emissions from UK carbon pricing and climate regulation.

Trade impacts

CBAM is expected to increase UK trade in CBAM sectors with regions with low emissions intensive production or carbon pricing mechanisms and may decrease trade in these sectors with regions which have carbon intensive production or no carbon pricing mechanisms.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

Consideration will be given to evaluating the policy’s impact on mitigation of carbon leakage risk combining external research and HMRC administrative data. This will enable the government to keep the tax’s effectiveness under review after implementation.

Further advice

If you have any questions about this change, please email the HMRC CBAM Policy Team.