UK businesses exporting to Europe could be impacted by new emissions reporting rules designed to close the gap between the carbon cost of products made in and outside of the EU.

The new protocol, called the EU Carbon Border Adjustment Mechanism, or EU CBAM, is being phased in over several years and will eventually apply the same EU carbon price to all products, regardless of where they’re produced.

Manufacturers in the EU already pay carbon fees set by internal policies, while imported goods often attract less or no carbon fees where they’re made. The CBAM aims to correct this by applying EU carbon pricing to imports, and some UK exporters will need to monitor and report their emissions as a result.

The main aim of the EU CBAM is to eliminate ‘carbon leakage’, where goods are manufactured in territories with weaker climate regulations before being imported to compete against products made in the EU.

While the existing Emissions Trading System (EU ETS) applies carbon pricing to EU-manufactured goods, the CBAM will cover goods produced in countries outside the EU, including the UK. Countries like Norway, Iceland and Switzerland, who are in the European Free Trade Association (EFTA), are exempted.

By levelling the playing field for carbon pricing, the EU hopes to encourage fairer competition within the trading bloc and promote more environmentally friendly manufacturing practices worldwide.

High-emitting industries are being targeted first, but other products could be added in future so it’s important that businesses are aware of the new rules even if they aren’t immediately impacted.

The product groups currently in scope are:

• Aluminium
• Cement
• Steel and Iron
• Fertilisers
• Electricity
• Hydrogen

Not all forms of each product group require a declaration – sheet aluminium must be declared but an aluminium door should not, for example – so businesses need to check the Combined Nomenclature (CN) codes of their products to find out if they need to comply.

The complexity of reporting depends on the product – simple goods with only Scope 1 emissions, like cement, require less detailed reporting than complex goods with embedded emissions and multiple CBAM components, like Portland cement which includes cement clinker.

The scope of the CBAM is expected to extend to include paper, plastics, petroleum products, industrial gases and some chemicals when the regulations go under EU review before 2030.and Eventually all products that have a carbon price in the EU ETS will have a corresponding CBAM price.

Businesses should begin gathering verified data on their emissions, even if they’re not exporting directly into the EU. Importers, registered agents or customers could ask for the data to remain compliant, so it’s important to be ready to supply the information when it’s needed.

Businesses exporting directly into the EU will also need to register as a CBAM declarant during 2025, as failure to do so will prevent them from importing CBAM-covered goods in 2026.

Information supplied in CBAM reports will include:

• Company details – registered office address and the authorised representative.
• Product data – the CN codes and volume (in tonnes) imported.
• Scope 1 emissions – direct emissions from production.
• Scope 2 emissions – emissions from electricity used in production, and the source of the electricity.
• Embedded emissions – emissions tied to production materials.
• Carbon price – any carbon fees already paid in the country of origin.

As a result of the CBAM, businesses may want to review their manufacturing processes and supply chains to look for opportunities to lower emissions. This could reduce the carbon cost of their products and make them more competitive in the EU marketplace.

The regulations are being rolled out in two phases:

Transitional phase

This phase began on 1 October 2023 and will end on 31 December 2025. Businesses wishing to continue importing goods in 2026 must register as CBAM declarants during 2025. Once registered, they submit quarterly reports including verified emissions data, or default estimates. Declarants don’t need to buy CBAM certificates during this phase.

The first CBAM reports, covering goods imported during the fourth quarter of 2023 were due on 31 January 2024, and the last reports in the transitional phase will be submitted by 31 January 2026, covering goods imported during the fourth quarter of 2025.

Full implementation

On 1 January 2026, the EU CBAM will be fully implemented, and importers will begin to file annual reports and purchase CBAM certificates to make up any carbon price shortfall. The first annual report is due on 31 May 2027.

Importers could face fines and trading restrictions if they fail to supply accurate reports and surrender the corresponding CBAM certificates. Also, default estimates will be phased out in this period and only verified emissions data will be accepted.

UK businesses affected by the EU CBAM will need to make sure they have reliable systems in place to accurately report emissions. Although this might mean added cost and administrative work, proactively tracking emissions could make them more attractive to EU customers, and potentially to other markets where CBAMs may be introduced in future.

Countries including Canada, South Korea and Japan have signalled their intent to introduce their own CBAM regulations, and the UK has committed to introducing a UK CBAM by 2027. Widespread adoption of CBAMs could eventually limit market options for high-emitting businesses and offer an advantage to those with carbon-conscious policies.

Professor Luca Tashchini, Professor and Chair of Climate Change Finance, and the Director of the Centre for Business, Climate Change, and Sustainability at the University of Edinburgh says: “Complying with the EU CBAM is not just about following EU rules-it’s about preparing your business for a future where carbon-focused trade policies are standard. UK businesses that take action now to meet these requirements can turn compliance into a valuable competitive edge.”

CBAM compliance is an ongoing process that requires regular monitoring and updates to ensure your business meets the evolving regulations. The Chamber Customs and British Chambers of Commerce can provide further support and guidance to help businesses remain compliant, while minimising the administrative burden.

Visit the Climate Hub or speak with your bank representative today to learn more about what EU CBAM means for your business and how you can prepare.