UK Government’s Strategy to Tackle Carbon Leakage
On 30 October 2024, in alignment with the Autumn Budget announcements, the UK Government provided crucial updates on the planned implementation of the UK Carbon Border Adjustment Mechanism (CBAM). Scheduled to commence on 1 January 2027, this initiative will be incorporated into the Finance Bill 2024-25, reflecting the government’s commitment to addressing carbon leakage and establishing equitable market conditions.
Overview of the UK CBAM
The UK CBAM is designed to impose a carbon price on imports from specific industries, including aluminium, cement, fertiliser, hydrogen, iron, and steel. This measure aims to ensure that imported goods bear a similar carbon cost to those produced domestically, fostering a level playing field and reinforcing the UK’s climate action strategies.
Key Features and Operational Details
The UK CBAM, set to take effect without a transitional period, differs from the EU’s approach by immediately applying liabilities from its operational start date. The mechanism will require importers to account for both direct and indirect emissions from 2027. Notably, the UK will employ default values to facilitate continued imports when precise emissions data is unavailable, with this approach under review until at least 2030.
Product Scope Adjustments
In an update to the initial proposal, the UK has decided to align more closely with the EU CBAM by excluding glass and ceramics from immediate inclusion, although these may be reconsidered later. Additionally, scrap materials like aluminium, iron, and steel have been explicitly excluded from the scope.
Tax Point Clarifications
The UK CBAM’s tax point will be triggered when goods are released for free circulation, exempting those under certain customs controls. Special provisions will apply to goods processed outside the UK and re-imported, as well as goods re-entered under the returned goods relief, which will not incur CBAM liabilities if they meet specific criteria.
Financial Thresholds and Compliance Measures
A significant adjustment in the government’s response is the increase of the minimum registration threshold for CBAM liabilities. The threshold has been raised to £50,000 of CBAM goods that pass the tax point over a 12-month rolling period. This change is designed to ensure that the costs of complying with the CBAM are more proportionate to the carbon leakage risk the government is seeking to address. Following a refinement of the CBAM model and its certification by the independent Office for Budget Responsibility in Spring 2024, this new threshold is projected to retain over 99% of imported emissions within the scope of the CBAM, while removing over 80% of otherwise registrable businesses from the requirement. Notably, over 70% of those businesses removed from the scope by this threshold adjustment are micro, small, or medium-sized enterprises.
Future Steps and Stakeholder Engagement
HM Revenue & Customs (HMRC) and HM Treasury (HMT) will continue to collaborate closely with industry stakeholders through newly formed working groups and international engagements. The aim is to ensure that the sectors most impacted by the CBAM are well-represented and that international partners are kept informed of the UK’s regulatory approach.
How Auditel Can Support Your Business Through CBAM Changes
As the UK prepares for the implementation of the Carbon Border Adjustment Mechanism, businesses may face challenges in adapting to the new regulations. Auditel, with its extensive expertise in energy consultancy and carbon management, is ideally positioned to assist companies in navigating these changes. Our team can provide strategic advice, compliance support, and solutions to optimise your operations within the new CBAM framework. By partnering with Auditel, you can ensure that your business not only complies with the upcoming regulations but also capitalises on opportunities to enhance sustainability and operational efficiency.
