Understanding CBAM

What the Carbon Border Adjustment Mechanism Means for UK Manufacturers

The Carbon Border Adjustment Mechanism (CBAM) is one of the most significant new climate policies to impact international trade — and it's already changing the landscape for UK exporters.

While it is an EU regulation, CBAM directly affects any business selling goods into the EU that fall under its scope. That includes many UK manufacturers in aerospace, metals, engineering, and electronics — especially where products involve high-emission materials like steel, aluminium, or cement.

What Is CBAM?

CBAM is the EU’s tool to prevent "carbon leakage" — where companies move production to countries with weaker climate rules. It works by applying a carbon cost on imported goods, equal to the cost EU producers already face under the EU Emissions Trading System (EU ETS).

Rather than tariffs, CBAM introduces a reporting and purchasing system for “CBAM certificates” — reflecting the embedded emissions in imported goods.

---

---

Who Is Affected?

From 2026 onwards, UK companies exporting to the EU will need to:

• Declare embedded emissions of products in CBAM categories.

• Purchase CBAM certificates if carbon costs have not been paid in the country of origin.

Sectors currently in scope include:

• Steel and aluminium

• Cement

• Hydrogen

• Fertilisers

• Electricity

More categories are expected in future — including some downstream products.

What’s Happening Now (2024–2025)?

Although full implementation begins in 2026, CBAM is already in force as of 2024 in a transitional phase. During this phase:

• EU importers must report embedded emissions of CBAM goods each quarter.

• Exporters must provide product-level emissions data to support declarations.

• No payments are required yet — but data quality and traceability matter.

This is where many UK firms risk being caught off guard.

What You Need to Do

If you're exporting CBAM goods into the EU, you should act now. Key steps include:

• Identify impacted products using EU customs codes.

• Map your supply chain and determine where emissions occur.

• Establish carbon footprints for relevant materials or components.

• Engage with EU customers to align on data requirements and formats.

Even if you are not the direct declarant, your EU customer will need accurate product emissions data from you — or face non-compliance risks.

How This Links to the SCS ESG Pathway

The ESG Pillar helps lay the groundwork for CBAM readiness by:

• Encouraging carbon baseline development

• Promoting lifecycle thinking across your supply chain

• Supporting GHG disclosure practices aligned with key frameworks

• Helping you adopt traceable, evidence-backed emissions estimates

If you are already building your ESG maturity through the Pillar, you’re ahead of the curve.

Looking Ahead

CBAM is part of a wider global trend: Carbon accountability is becoming mandatory. UK organisations must be ready to quantify and justify the climate impact of their products — or risk losing access to key markets.

CBAM is not just a compliance issue. It's a competitive advantage for businesses that act early.