Why carbon border adjustments exist

If you import steel, cement, fertiliser, aluminium or hydrogen into the UK or EU, you have probably noticed a new line of questioning from your suppliers: what are the embedded emissions of this consignment? That question sits at the heart of carbon border adjustment mechanisms, or CBAMs.

The logic is straightforward. For years, heavy industry in Europe has paid for its carbon emissions through schemes such as the EU Emissions Trading System. That cost sits inside the price of a tonne of domestic steel or cement. An importer bringing in the same product from a country with no carbon price faces no such cost, so the imported version can undercut the local one. If production simply shifts abroad, emissions do not fall — they move. That is carbon leakage, and a CBAM is the fix: a charge applied at the border that mirrors the carbon cost the domestic producer already carries.

For importers, this turns carbon from an abstract sustainability metric into a line item on your landed cost calculation. The sooner you treat it that way, the less painful it becomes.

How the EU CBAM works in practice

The EU scheme is the most developed, and it applies to goods in a defined list: iron and steel, cement, fertiliser, aluminium, hydrogen and electricity, plus certain downstream products such as screws, bolts and similar steel articles.

• Reporting phase: importers have been submitting quarterly reports covering embedded emissions, with no financial charge attached.
• Definitive phase: from 2026, you buy certificates to cover the declared emissions, with the price tracking the EU carbon market.
• Who is liable: the importer established in the EU, or the customs representative where one is appointed. This is a reporting declarant role, not a box on a customs form.
• De minimis: consignments below a set value threshold are excluded, which spares most one-off and sample shipments.
• Default values: where you cannot obtain verified actual data, default values may be used — but they are deliberately conservative and will usually cost you more.

The practical consequence is that your supplier's emissions data becomes a commercial variable. A supplier who can hand you verified figures is worth more than one who cannot.

The UK CBAM and what it means for importers

The UK is introducing its own mechanism to sit alongside the EU scheme, with the charge applying from 1 January 2027. It covers aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel.

Two design features matter most for planning:

• A value threshold: liability falls on importers bringing in CBAM goods above a set annual value, so smaller importers are largely out of scope. Check your rolling twelve-month totals rather than assuming you are too small.
• Liability sits with the UK importer, not the overseas exporter. You will need to register, report embedded emissions and pay the charge, even though the emissions occurred thousands of miles away.

Where UK producers receive relief from UK carbon costs, that relief is reflected in the CBAM calculation so the playing field stays level. Note also that UK imports into the EU face the EU scheme, and EU imports into the UK will face the UK scheme — if you trade in both directions, you are dealing with two regimes, not one.

Getting emissions data you can actually use

Embedded emissions are calculated per tonne of goods and cover both direct emissions from production and indirect emissions from electricity consumed. In practice, gathering this is where most importers lose time.

• Start with your top ten suppliers by volume. These usually account for the bulk of your exposure.
• Ask early and ask specifically: request installation-level emissions data, the production route (for example, blast furnace versus electric arc furnace steel), and the electricity source.
• Build it into contracts. Add clauses requiring emissions data within a set number of days of each shipment, and consider who bears the cost if data never arrives and default values apply.
• Keep an audit trail. Regulators will expect records that trace declared figures back to supplier documentation.

If a supplier cannot provide figures now, assume defaults will apply, then model what that does to your margins. The gap between actual and default values is often the difference between a workable and an unworkable landed cost.

Five practical steps to take this quarter

• Map your exposure. List imported goods against the CBAM commodity codes and estimate annual value and tonnage.
• Decide who owns it internally. Customs, procurement and finance all have a stake; nominate one owner.
• Model the cost. Run scenarios using both actual supplier data and default values.
• Talk to your suppliers. Explain what you need, why, and by when. Suppliers who export widely are already being asked.
• Review sourcing. Lower-carbon suppliers may become cheaper on a total-cost basis once the border charge is included — sometimes surprisingly quickly.

Where this is heading

CBAMs are spreading. Several jurisdictions are consulting on similar measures, and the EU has signalled possible extension to further goods and to downstream products. Reporting obligations tend to arrive well before charges do, which gives importers a useful window — but only if they use it.

The importers who will cope best are those who treat embedded emissions as procurement data rather than a compliance chore. Ask for the numbers now, put them in contracts, and your border costs become something you can plan for rather than something that surprises you.