UK to Impose New Carbon Tax, Diligence Rules for Importers by 2027

The U.K. announced plans this week to put in place a carbon border adjustment mechanism, which could lead to new import taxes and due diligence requirements on aluminum, cement, ceramics, fertilizer, glass, hydrogen, iron, steel and other industrial sectors associated with high carbon emissions. The mechanism, which is expected to be implemented in 2027, came after a 12-week public comment period in which over 100 representatives from industry, non-governmental organizations, think tanks and academia gave input about the types of products that should be covered, how import taxes should be calculated, a timeline for implementation and more.

The U.K. said it decided to move forward with a carbon border tax after “giving thorough consideration to the potential implications,” including how it might hurt trade with countries that don’t have emissions reporting in place. The announcement comes as the EU prepares to impose the first import reporting requirements under its upcoming CBAM (see 2312010056 and 2312070051), which doesn’t impose actual taxes until 2026 (see 2308170033).

Although the U.K. is preparing to launch another consultation period next year to fine-tune the details of its CBAM, the country said it’s expecting U.K. importers’ tax liability to be based off the “greenhouse gas emissions intensity of the imported good” and the gap between the carbon price applied in the good’s country of origin and the carbon price that would have been applied if the good had been produced in the U.K. The country said it plans to study next year the “precise list of products” that will be covered, and will make that decision after consulting with trade partners and affected businesses.

The U.K. also said its existing Emissions Trading Scheme, which places a price on greenhouse gasses emitted by domestic producers, will “work cohesively” with the new CBAM to “ensure imported products are subject to a carbon price comparable to that incurred by UK production.” Public commenters told the U.K. that the CBAM should only apply to products in sectors already subject to the Emissions Trading Scheme and warned the country against placing a carbon border tax on the electricity and agri-food sectors as well as certain complex goods where it would “be almost impossible to assign a standard carbon cost,” like automotives.

Forty-one of the 83 respondents surveyed by the U.K. said the importer of the product should be the party responsible for meeting CBAM requirements, which could include conducting due diligence on the import and paying any carbon costs. An even higher percentage of respondents said the importer should be responsible for providing “accurate, independently verified emissions data” on the imported product.

The U.K. noted that some commenters voiced “concerns” about the “additional burdens” this would impose on importers, including challenges importers may face in obtaining the data and “risks around data confidentiality.” But a majority of commenters also said it would be “practicable” to require importers to provide information on the “effective carbon price already paid” in the originating country.

The U.K. also was asked to align its CBAM with the EU’s border tax or with other “international engagement” to reduce any potential trading “frictions.” About half of respondents said the U.K. should mirror the EU’s plan to fully implement its CBAM by 2026.