Explains: Carbon Border Adjustment Mechanism (CBAM): Illustrative CBAM rates and worked example, Published 16 October 2026 (illustrative; official Q1 2027 rates due before end of 2026), 16 Oct 2026
How will the UK's carbon border charge work from January 2027?
HMRC has published illustrative rates, default values and technical rules for the UK's carbon border charge on imported steel, aluminium, cement, fertiliser and hydrogen. Here is how the charge is worked out and who pays it.
- Proposed
- Consultation10 Feb 2026
- Adopted8 Sep 2026
- In force1 Jan 2027
The charge is set out in the Finance Act 2026 and in regulations made in 2026. The rates published on 16 October are illustrative only and create no tax bill. The emissions regulations (SI 2026/995) were made on 8 September 2026 and come into force on 1 January 2027.
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What happened
On 16 October 2026 HMRC and HM Treasury published the working rulebook for the UK's carbon border charge (the Carbon Border Adjustment Mechanism, or CBAM), which starts on 1 January 2027. The package includes illustrative charge rates for each covered sector, default emissions values, record-keeping rules and 313 pages of technical guidance on measuring and checking emissions. The illustrative rates range from about £1.45 to about £9.79 per tonne of carbon dioxide.
What a carbon border charge is, and why the UK rate is lower than the carbon price
Factories in the UK that make things like steel and cement have to pay for much of the carbon dioxide they release. They do this through the UK Emissions Trading Scheme (UK ETS), where companies buy permits, called allowances, for each tonne they emit. A factory abroad selling the same steel into the UK may pay no carbon price at all. The worry is that production, and its pollution, moves to places with weaker rules. This is called carbon leakage.
A carbon border charge tries to level this out. From 1 January 2027, a UK business that imports certain goods (aluminium, cement, fertiliser, hydrogen, and iron and steel) will pay a charge based on the greenhouse gases released when those goods were made. These are called the goods' embodied emissions. For the UK CBAM, the charge is based on the direct emissions from making the goods.
The charge is not the full UK carbon price. UK producers in these sectors still receive many allowances for free, so they pay for only part of their emissions. The UK CBAM rate copies that. HMRC's method takes the average UK ETS auction price for the previous quarter and multiplies it by the share of emissions that UK producers in that sector actually pay for.
HMRC's own example for cement shows how this works. The average UK ETS price for July to September 2026 was £58.15 per tonne. Cement makers received free allowances for about 87.1% of their emissions, and that figure is reduced slightly by a 2027 phase-out factor of 97.5%. What is left gives an illustrative cement rate of about £8.78 per tonne of carbon dioxide. Under this formula, the rate goes up as free allowances are phased out, because UK producers then pay for a bigger share of their emissions.
Importers can work out embodied emissions in two ways. They can use real data from the factory that made the goods, checked by an accredited independent verifier. Or they can use a government default value, a standard figure per tonne of product. The Treasury has set the 2027 and 2028 defaults with a 10% markup in every sector except fertiliser, so that defaults should not be cheaper than using real data.
What actually changes
| Area | Before | After |
|---|---|---|
| Imports of covered goods | No carbon charge at the UK border | From 1 January 2027, importers pay a charge on the direct emissions embodied in covered goods |
| How much is charged | Rates not yet known | Illustrative rates published per sector, from £1.45 (fertiliser) to £9.79 (aluminium) per tonne of CO2e; official rates set each quarter |
| Default emissions values | Draft values only | Defaults published, in place for 2027 and 2028, with a 10% markup except for fertiliser; country-specific defaults planned from 2029 |
| Checking real factory data | Draft regulations and consultation | Regulations made (SI 2026/995): verifiers must be independent and accredited, and verification reports kept for 6 years |
| Carbon price paid abroad | No border relief needed | Importers can claim carbon price relief for an effective carbon price already paid overseas, up to the CBAM due |
Timeline
- 10 Feb 2026Draft CBAM regulations published for consultation
Consultation closed 24 March 2026
- 9 Apr 2026Draft emissions and verification regulations published
Consultation closed 21 May 2026
- 8 Sep 2026Emissions and Verification Regulations made (SI 2026/995)
Laid before the House of Commons on 9 September 2026
- 16 Oct 2026Illustrative rates, default values and technical guidance published
Written ministerial statement by the Financial Secretary to the Treasury
- Today13 Nov 2026 · upcomingDeadline for feedback on HMRC's technical guidance
- 31 Dec 2026 · upcomingOfficial rates for January to March 2027 due by this date
Then published at the start of each quarter
- 1 Jan 2027 · upcomingUK CBAM starts for goods imported from this date
- 31 May 2028 · upcomingFirst return and payment due, covering 2027 imports
Registration for 2027 is due by 31 January 2028; returns become quarterly from 2028
Who it affects
UK importers of covered goods
Must register with HMRC, work out embodied emissions, file returns and pay the charge. The importer is the person in whose name the customs declaration is made.
Threshold: Covered imports worth £50,000 or more, tested over the previous 12 months and the next 30 days
Overseas producers selling into the UK
May be asked for verified emissions data by their UK customers, which needs an accredited independent verifier and a site visit
Verifiers and accreditation bodies
Verifiers must be independent and accredited (ISO/IEC 17029:2019 and ISO 14065:2020); accreditation bodies must be full members of the Global Accreditation Cooperation
UK manufacturers and buyers of steel, cement and similar goods
Imported inputs may cost more; how much of the charge is passed on depends on contracts and markets
A worked example
An importer of cement in 2027
A UK building supplies firm imports 2,000 tonnes of cement in 2027. Its overseas supplier has verified data showing 0.6 tonnes of CO2e per tonne of cement. (Both figures are made up for this example.)
- 01Embodied emissions: 2,000 tonnes × 0.6 = 1,200 tonnes of CO2e (illustrative calc).
- 02Charge before relief: 1,200 × £8.78 (HMRC's illustrative cement rate) = £10,536 (illustrative calc).
- 03If the producer paid an effective carbon price of £3 per tonne at home, carbon price relief is 1,200 × £3 = £3,600 (illustrative calc).
- 04Amount due: £10,536 − £3,600 = £6,936 (illustrative calc).
About £6,900 for the year, filed and paid by 31 May 2028.
Illustrative only. The real rate will be the official quarterly rate, which HMRC says is likely to differ from the illustrative figures. Without verified data the firm would use the default value for cement instead.
Common misreadings
Importers will pay the full UK carbon price of around £58 a tonne.
The rate reflects only the share of emissions UK producers pay for after free allowances. HMRC's illustrative rates for early 2027 are between about £1.45 and £9.79 per tonne.
The rates published in October are what businesses will pay.
HMRC says the October rates are illustrative, based on current data, and create no tax liability. Official rates for early 2027 come before the end of 2026.
Goods from the EU are already exempt.
The UK and EU have committed to link their emissions trading schemes, which the Treasury says will lead to an exemption for EU-origin goods. HMRC's policy summary says no country is currently exempt.
What's still uncertain
- Final rates
- HMRC says the data behind the illustrative rates is likely to change before 1 January 2027, and the free allocation figures are still being checked by the UK ETS Authority. The official rates for January to March 2027 are due before the end of 2026.
- An EU exemption
- The Treasury's 16 October statement refers to a UK–EU commitment to link emissions trading schemes, which would exempt EU-origin goods from the UK CBAM. It gives no date, and HMRC's policy summary says no jurisdictions are exempt yet.
- Technical guidance
- HMRC is taking feedback on its 313-page monitoring and verification guidance until 13 November 2026 and says it may update the guidance before 1 January 2027.
For practitionersShow
Scope & thresholds
- Covered goods: aluminium, cement, fertiliser, hydrogen, iron and steel, identified by commodity code in the Annex to HMRC's policy summary.
- Liable person: the importer, i.e. the person in whose name the customs declaration is made; a tax agent may file returns but cannot register or be liable.
- Registration threshold: £50,000 of CBAM goods, with a 12-month look-back test and a 30-day look-forward test.
- Accounting periods: calendar year 2027, then quarterly from 1 January 2028. First return and payment due 31 May 2028.
- Monitoring period: for goods imported in 2027, use the most recently verified emissions intensity from the import year or the preceding year; from 2028 the look-back is the two preceding calendar years.
Key clauses
- Finance Act 2026, Sch 17 Pt 4
- Principle that defaults should give no advantage over actual embodied emissions (per HCWS387).
- SI 2026/809
- Calculation of the CBAM rate and determination of carbon price relief.
- SI 2026/995 reg 4
- Default case: emissions = weight of the good × default value.
- SI 2026/995 reg 5
- Actual case: eight-step embodied emissions calculation.
- SI 2026/995 regs 9–15
- Monitoring periods, verified data, verifier independence and accreditation (accreditation body must be a full member of the Global Accreditation Cooperation).
- SI 2026/995 reg 16(3)
- Verification reports kept for 6 years.
What to do now
- Map imports by commodity code against the CBAM Annex and test them against the £50,000 threshold.
- Ask overseas suppliers whether they can provide verified installation-level emissions intensity for 2026 or 2027.
- Compare supplier data with the published default values, which carry a 10% markup outside fertiliser.
- Gather evidence of any carbon price paid overseas to support carbon price relief claims.
- Send any comments on HMRC's technical guidance by 13 November 2026 (cbampolicyteam@hmrc.gov.uk).
- Set up processes for registration by 31 January 2028 and the first return by 31 May 2028.
Data you'll need
- Customs declarations, commodity codes, weights and values of CBAM goods
- Installation-level direct emissions and production data from suppliers
- Verification reports and verifier accreditation details
- Evidence of effective carbon prices and any compensation paid overseas
Primary documents
- Illustrative CBAM rates and worked example (HMRC, 16 Oct 2026) (opens in new tab)
- CBAM policy summary (HMRC, updated 16 Oct 2026) (opens in new tab)
Scope, registration, returns, relief and verification
- CBAM technical guidance for monitoring, verifying and reporting emissions (HMRC) (opens in new tab)
Feedback by 13 November 2026
- The CBAM (Emissions and Verification) Regulations 2026, SI 2026/995 (opens in new tab)
- Written ministerial statement HCWS387 (16 Oct 2026) (opens in new tab)
- GOV.UK CBAM collection (opens in new tab)
Default values, rates, records and force of law notices
Key terms
- Embodied emissions
- The greenhouse gases released when a product was made.
Practitioner note
For UK CBAM, direct emissions per tonne of good, calculated by default value or the eight-step actual method in SI 2026/995 reg 5.
- Carbon leakage
- When production moves to countries with weaker climate rules, so emissions move rather than fall.
- Free allowances
- Emissions permits given to some UK factories at no cost, to protect them from foreign competition.
Practitioner note
The UK CBAM rate is scaled by the sector's baseline free allocation percentage and the phase-out reduction factor (97.5% in 2027).
- Default value
- A standard emissions figure set by the government for use when real factory data is not available.
Practitioner note
Single product-level, trade-weighted values excluding EU data, with a 10% markup except fertiliser, for 2027–2028.
- Carbon price relief
- A reduction in the charge for carbon prices already paid in the country where the goods were made.
Practitioner note
Embodied emissions × effective carbon price, capped at the CBAM liability.
From January 2027, UK businesses importing steel, aluminium, cement, fertiliser or hydrogen will pay a charge for the carbon released making them. The rate follows what UK factories actually pay after free permits, so it starts low, roughly £1.45 to £9.79 a tonne on October's illustrative figures, and the formula raises it as free permits are phased out.
Sources
- Carbon Border Adjustment Mechanism (CBAM): Illustrative CBAM rates and worked example — HM Revenue & Customs, 16 Oct 2026
- Carbon Border Adjustment Mechanism (CBAM): Policy summary — HM Revenue & Customs, 16 Oct 2026
- CBAM – October 2026 CBAM Rate and Default Emissions Values update (HCWS387) — UK Parliament / HM Treasury, 16 Oct 2026
- The Carbon Border Adjustment Mechanism (Emissions and Verification) Regulations 2026 (SI 2026/995) — legislation.gov.uk, 8 Sep 2026
- CBAM: technical guidance for monitoring, verifying and reporting emissions — HM Revenue & Customs, 16 Oct 2026
- Carbon Border Adjustment Mechanism (collection) — GOV.UK
This explainer was written with AI assistance and checked against the primary documents listed above. How we work