The UK and EU are working towards a goal of being carbon neutral by 2050. The UK has also set a goal to reduce its carbon emissions by 68% by 2030. A range of policies and initiatives have been developed to help achieve these shared goals, including the Carbon Border Adjustment Mechanism (CBAM) regulations, which have the potential to affect SMEs unaware of the changes ahead. Here, Becky Shaw, Regional Commercial Manager at Rhenus Logistics talks through the regulations to date, upcoming changes and the opportunities the regulations present for UK businesses exporting to the EU.
What is CBAM?
CBAM is a regulatory measure adopted by the EU to combat the environmental impact of carbon intensive goods (which contribute to Greenhouse Gas Emissions), such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, imported into the EU. The regulation calls for importers to report the carbon dioxide (CO2) emissions produced in the manufacturing process of these product. CBAM came into force October 2023 in a transitional phase, which involves data collection, that ends December 2025, when the final phase will be introduced and will seek to impose tariffs on the import of CBAM products. Businesses trading carbon intensive goods with the EU, either as supplier or importer of record, will already be conversant with CBAM and its requirements, while those intending to trade these products need to gain familiarity with the requirements as a matter of urgency.
How will CBAM get us closer to carbon neutral?
The policy was designed to level the playing field between EU producers and those in countries with less stringent carbon pricing policies by preventing ‘carbon leakage’. This is where businesses transfer production to countries with more lax emission constraints which ultimately leads to an increase in total emissions. It also aims to encourage all countries to take more ambitious action on climate change.
What SMEs need to know
Earlier this year, CBAM reporting became a mandatory part of the transition phase with businesses required to report CO2 levels produced in the manufacturing process on a quarterly basis, either as a default value (based on statistics released by the EU’s Emissions Trading System (ETS) or actual value. The reporting requirement was amended in Q3 2024 with businesses having to report actual values produced (the so called 2nd transitional phase).
The transitional period provides businesses with the opportunity to acclimatise to the new reporting procedure, and to enable them to research and gather the necessary information. At the same time, it also enables the EU’s ETS to analyse the levels and impact of the imported CBAM goods to help them construct the tariff mechanism that will come into force from January 1st, 2026.
What businesses need to consider
From January 2026, CBAM reporting will move to an annual requirement, at which time importers will be required to pay additional tariffs on the import of carbon intensive goods through the purchase and subsequent surrender of CBAM certificates.
UK businesses trading against DDP incoterms, and who by default then become the importer of record are responsible for CBAM reporting and will be required to obtain CBAM certificates, usually via the services of their customs intermediary.
The impact of CBAM reporting can also extend to businesses trading against DAP incoterms, who may be contacted by their EU Customer to provide information on the CO2 emissions produced in the manufacture of their goods. This can prove particularly challenging if those goods originate from a manufacturer located outside the UK.
Failure to comply with CBAM regulations can expose businesses to the risk of financial penalty, export prohibition or sanction. It is therefore recommended that businesses trading such goods research and obtain the necessary commercial records to enable CBAM reporting to be managed compliantly.
CBAM in the UK
Like many nations committed to carbon neutrality, the UK Government has confirmed its commitment to a CBAM mechanism.
Currently subject to a consultation phase, the UK Government announced the introduction of UK CBAM in 2027 which will involve reporting on emissions generated from direct manufacturing processes as well as indirect emissions from external sources such electricity required in that manufacturing process.
The consultation is expected to continue and will consider the application of the CBAM tariff and the commodities which will be subject to the measure.
CBAM: The business opportunity
Keeping up to date with CBAM updates is essential. We may be in the transition phase, but there is still some movement on deadlines and requirements. Working with a knowledgeable and experienced logistics and customs team can help businesses remain confident in their EU trade and that they aren’t exposing themselves to any potential penalties while trading cement, iron and steel, aluminium, fertilisers, electricity and hydrogen with the continent.
Regulations like CBAM are essential in tackling carbon reduction and reaching net zero goals but they do also present commercial opportunities. As part of adapting to the new regulations, businesses can evaluate where they may have more carbon-intensive suppliers and processes and by identifying alternative suppliers with lower emissions, reduce CBAM costs. Products with lower carbon values will represent a cost saving to buyers on the continent as CBAM certificates will be less costly. Equally, exploring more sustainable supply chain solutions with logistics suppliers such as electric trucks or rail, can help to reduce the overall carbon footprint of a business and the products produced and supplied.
Not just about compliance
Ultimately, adapting to CBAM is not only about compliance; it’s a chance to evaluate carbon-intensive areas, explore cleaner supply chain alternatives and gain a competitive advantage by offering lower-carbon products. By partnering with knowledgeable logistics providers and customs brokers, businesses can manage the change smoothly, leveraging CBAM to benefit their business too.
For more information, visit: https://www.rhenus.group/uk/en/.
About Rhenus
The Rhenus Group is one of the leading logistics specialists with global business operations and annual turnover amounting to EUR 7.5 billion. 40,000 employees work at 1,320 business sites in more than 70 countries and develop innovative solutions along the complete supply chain. Whether providing transport, warehousing, customs clearance or value-added services, the family-owned business pools its operations in various business units where the needs of customers are the major focus at all times.