UK Announces Scaled-Back Carbon Border Adjustment Mechanism Focused on Key Sectors

The UK government has unveiled a revised Carbon Border Adjustment Mechanism (CBAM), narrowing its scope to five high-carbon industries. This move aims to reduce carbon leakage and promote decarbonization. The mechanism will be implemented on January 1, 2027. It will now impact only the aluminium, cement, fertiliser, hydrogen, electricity, and iron and steel sectors.

Targeted Approach to High-Carbon Sectors

Initially, the CBAM aimed to cover more sectors, including glass and ceramics. However, the UK government excluded these industries. They have lower carbon emissions and a reduced risk of carbon leakage. By focusing on higher carbon footprint sectors, the government adopts a targeted approach. This approach addresses industries with the largest environmental impact. The chosen sectors—aluminium, cement, fertiliser, hydrogen, electricity, and iron and steel—contribute significantly to global emissions. They also play a crucial role in the UK’s industrial base.

Carbon Pricing Framework and Quarterly Adjustments

The UK will impose a carbon price on imported goods under the CBAM. This price is based on their carbon content, considering both direct and indirect emissions. The government will set a default emissions value for each product. This value applies when verified emissions data is unavailable. CBAM rates will be adjusted quarterly. Adjustments will be based on the UK Emissions Trading Scheme (ETS) price. This includes carbon price support and free allowances. Importantly, goods will be subject to the UK CBAM even if they’ve already faced carbon pricing in their country of origin.

Support for SMEs and Enforcement Measures

To protect small and medium-sized enterprises (SMEs), the UK government has increased the CBAM threshold to £50,000 per year. This ensures that smaller businesses aren’t disproportionately affected. The government is also implementing strict enforcement measures. These measures include criminal penalties to deter CBAM evasion.

International Cooperation and Industry Engagement

The UK plans to establish an industry working group. This group will engage with affected sectors. It will ensure the smooth implementation of the CBAM. The government also intends to collaborate with other nations. This will ensure global exporters comply with the new carbon pricing measures. The goal is to create a level playing field for all market participants.

SuperMetalPrice reports that this refined CBAM will likely influence the global trade of aluminium and iron and steel. The mechanism could lead to increased demand for lower-carbon production methods in these sectors. This could also affect the pricing and competitiveness of these materials on the international market.