We are now approaching an important milestone in the delivery of carbon border adjustment mechanism (CBAM) . Shortly following Budget 2025, Finance Bill 2025-26 will be introduced and will include the final CBAM primary legislation. So we wanted to provide you with an update on CBAM announcements at Budget 2025 and an overview of technical legislation changes.
Today, the government has announced that indirect emissions associated with the production of CBAM goods will not be included in scope of CBAM at its implementation on 1 January 2027. Their inclusion in CBAM scope will be delayed until 2029 at the earliest. This is to reflect continued support for the Energy Intensive Industries (EII) Compensation Scheme.
This government recognises that refineries play a role in energy security and the UK’s industrial base and will publish a Call for Evidence on the fuel sector. The government is also considering the feasibility and impacts of including refined products in CBAM in the future.
The government has also made technical changes to the legislation following the April 2025 consultation, you can find further detail here. These changes include
- the free allowance adjustment in the CBAM rate calculation will be based on a sectoral average of emissions covered by Free Allowances over a baseline period, adjusted annually to reflect the phase out of Free Allowances under the UK Emissions Trading Scheme
- carbon price relief has been extended to enable recognition of carbon prices incurred under carbon border adjustment mechanisms
- inclusion of an exemption for emissions embodied in UK-produced precursor goods, imported into the UK as part of a complex CBAM good. This will prevent a carbon price being paid twice on the same good, whilst reducing administrative burdens for businesses
- inclusion of an exemption for emissions embodied in CBAM goods under temporary admission in the UK, with a full relief from customs duties, to ensure CBAM only applies where goods enter the UK market and therefore present a carbon leakage risk
- time limit for repayment claims set at 3 years for customers who have made an error on their return and overpaid CBAM
- removal of the group treatment provision following feedback that group treatment provides limited benefits to businesses
We are grateful for the engagement received to date and are committed to working closely with all interested stakeholders as we prepare to implement CBAM from 1 January 2027.
The UK Parliament website includes the latest versions of Bills introduced to Parliament and associated documents. Please note that the primary legislation may change as a result of Parliamentary scrutiny.
You can find more information on CBAM, including next steps, in the Policy Update. You can access the Policy Update here.
If you have any questions, please contact [email protected]