ICAEW’s Tax Faculty has responded to the government’s consultation on the design and administration of a UK carbon border adjustment mechanism (CBAM).  

The faculty broadly supports the introduction of a CBAM as an important measure to address carbon leakage and promote cleaner production globally.  However, ICAEW is concerned that the proposed timelines for compliance may be overly ambitious. It has recommended a number of changes, which would improve the operation of the CBAM, including making it simpler and easier for businesses to comply. 

Purpose of a CBAM 

A CBAM applies a charge to imported goods based on the embedded emissions within those goods.  

The government has announced that a UK CBAM will be introduced with effect from 1 January 2027. A UK CBAM should ensure that products from overseas are subject to a comparable carbon price to those produced in the UK. Initially, the CBAM would apply to imports into the UK of iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement. 

ICAEW’s view 

ICAEW is concerned that the timelines for compliance set out by the government may be too challenging for some businesses. For example, the proposed five-month deadline after the first accounting period may be too short for obtaining accurate emissions data from global supply chains. Additionally, moving to quarterly reporting periods from 2028 could pose a significant administrative burden for businesses. ICAEW has instead proposed a more gradual transition, with six-month reporting periods in year two to allow businesses additional time to adapt to the new requirements.  

The faculty has urged the government to: 

• consider a tiered approach to default emissions values based on data availability and reliability from different regions/sectors;
• provide comprehensive guidance and support for businesses, especially SMEs, in navigating CBAM requirements and accessing necessary data;
• review and update default values, CBAM rates, and other system parameters on a regular basis to maintain fairness as market and trade conditions evolve; 
• establish mutual recognition agreements with other countries to streamline reporting of overseas carbon prices; and
• provide clear guidelines on enforcement, including examples of punishable non-compliance actions, to ensure transparency. 

Further information:  

• ICAEW recorded webinar: The EU CBAM – What does it mean for UK businesses?
• Government factsheet: UK CBAM