A widespread lack of urgency about impending EU environmental reporting regulation is misguided – as many UK exporters into Europe will find themselves caught in the crossfire of the rules, an expert is warning.

The Carbon Border Adjustment Mechanism (CBAM) is an EU initiative that requires importers of certain carbon intensive goods into the EU – iron and steel, cement, fertilisers, electricity and hydrogen – to report their actual carbon emissions. For UK businesses that want to trade with Europe, being able to supply your customers with the information they need to comply with CBAM will be essential, or you may risk reputational damage, warns Ruth Corkin, Principal, Indirect Tax, at Hillier Hopkins. 

Information for EU customers

“Businesses in the UK may think because this is EU regulation, they don’t need to worry. But if your EU customer is the importer, and they can't get this information from you and they get fined or their goods get stopped at the border, they may find someone else to do business with. Businesses can bury their heads in the sand, but if you can’t supply your EU customers with the right information, they may go elsewhere,” Corkin warns.

Under the rules, importers must buy a certain number of emissions certificates and redeem them in an annual return. “It’s hugely complex,” Corkin warns. “The workaround for UK businesses is to have delivery terms that don’t involve you being the importer into the EU. However, your customer, who will then be the importer, will need this data from you, so you need to know further down the supply chain what those emissions are.”

Meanwhile the EU Deforestation Regulations (EUDR), due to come into force next year, will apply to agricultural products associated with global deforestation: palm oil; cattle; soy; coffee; cocoa; timber; rubber; and products derived from the listed commodities. Importers in the EU must capture information including geolocations about product origin. 

UK CBAM in the pipeline

A UK CBAM is at consultation stage, with plans to introduce similar UK regulation by 2027. Companies importing over £50,000 of CBAM goods will need to report on a return by the end of May 2028 for the 2027 calendar year, after which they must complete a quarterly return and pay tax accordingly. “You need to capture the information on import. And again, you’re going to need to know your supply chain. The UK has opted for default values, which will make it a bit easier to calculate.

“UK companies are in many cases completely unaware that there’s this huge train coming down the line, and it covers a wide range of products. If your goods fall outside of the commodity codes that are listed as being in scope of the rules, it won’t be a problem. But in both UK and EU legislation, there is the capacity to add more categories of goods. Even if you’re one person in a long chain, there’s potentially quite a lot of information that needs to be gathered.”

Hillier Hopkins’ advice is to:

• check whether you will be affected by the rules; 
• check that the commodity codes you use are still current; and 
• invest in software to help you produce reliable carbon data. 

Start planning now

“If you’ve relied on the same commodity code for 15 years, something is bound to have changed in the interim. Make sure, too, that you know your products are as carbon efficient as possible,” Corkin says. “A lot of planning is needed and that’s why I’m quite anxious for clients because we’ve only got one or two years to go. There is a lot that they are going to have to consider to be able to do that cost benefit analysis about how they trade with the EU.”

Ed Saltmarsh, ICAEW Technical Manager, VAT and Customs, adds: “As we approach the full implementation of these regulations, it’s crucial for UK businesses to proactively engage with their supply chains and ensure they can provide the necessary carbon data. Ignoring these requirements could lead to significant disruptions and lost opportunities in the EU market.”

• An ICAEW webinar taking place on 11 February will explain how EUDR and CBAM will work, and outline the impact of the regulations on UK businesses, including the risks of not complying.