The infrastructure and energy sectors in the UK and EU import a large number of finished and semi-finished goods from around the world, including from many countries where environmental regulation is lower than in the UK and EU. Where those goods are carbon-intensive, Carbon Border Adjustment Mechanisms (CBAMs) in the EU and the UK are likely to make them more expensive over the coming years. For example, if carbon-intensive construction materials or components have been produced in a country with lower environmental standards, CBAMs are likely to require payment of an additional charge when they are imported into the EU or UK.

What's the latest state of play in the EU?

The EU's Carbon Border Adjustment Mechanism or CBAM entered into its transitional period on 1 October 2023. Importers of carbon-intensive goods must now meet carbon reporting obligations set out in the CBAM Implementing Regulation. From 2026, CBAM will require companies to pay a levy on the carbon emitted during the production of certain carbon-intensive goods made outside the EU when they are imported into the EU to address 'carbon-leakage'. Although in-scope companies have a few years before the obligation to purchase CBAM certificates applies, and the reporting and compliance obligation sits with the importer, energy and infrastructure actors importing significant pieces of hardware and components into the EU should:

  • understand which products are covered by CBAM and how their business might be impacted from a supply chain perspective; and
  • plan for price increases and review contract terms to ensure that relevant costs are properly allocated.

In relation to the energy sector, it should also be noted that no distinction is made between products related to fossil fuel energy and those aimed at renewables – importing a wind turbine blade will be subject to CBAM in exactly the same way as importing parts of an oil rig tower. See our detailed briefing for more information.

Is there a CBAM in the UK?

Not yet – but earlier in 2023 the UK Government ran a consultation in relation to implementing a domestic UK CBAM and recent press reports suggest that the Treasury is planning to introduce a scheme in 2026, when the EU mechanism takes effect.

What type of products are likely to be caught?

Sectors covered in the first phase of the EU CBAM include the following carbon-intensive raw materials/inputs: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Other countries' CBAMs are likely to have a similar focus, but may differ somewhat in terms of their exact scope.

What about UK firms that export carbon-intensive products to the EU?

While the UK does have its own emissions trading system (UK ETS), data from September 2023 indicated the cost per tonne of carbon dioxide produced was trading at just over half of the value per tonne of EU equivalent. This is likely to mean that UK products will face a carbon adjustment, which could make them less attractive from an EU importer perspective.

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