July 2024

EU CBAM: Impact on UK Businesses

The EU's Carbon Border Adjustment Mechanism (CBAM) is a policy aimed at reducing carbon emissions by levelling the playing field between EU and non-EU producers. Already effective since October 2023, the CBAM is set to impact a wide range of businesses, particularly those involved in exporting to the EU or supplying to those companies who export to the EU. The mechanism focuses initially on high-emission sectors such as cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, with plans to expand coverage by 2030

Key Implications for UK Businesses

1. Increased Reporting Requirements:

From January 2026, UK businesses exporting any of the mentioned goods to the EU must provide detailed reports on the carbon emissions embedded in their products. This data must be verified by independent entities, and failure to provide accurate emissions data will result in default values being applied - values which are often based on the worst-performing EU installations. (EY Tax News)

2. Competitive Pricing Adjustments:

UK exporters (or if you work with an exporter) need to prepare for the financial implications of CBAM certificates, which will be required from 2026. These certificates, priced similarly to EU Emissions Trading System (ETS) allowances, will effectively increase the cost of exporting high-emission goods to the EU if emissions are not mitigated. Companies that proactively reduce their emissions will gain a competitive advantage by lowering or avoiding these additional costs.

3. Strategic Supply Chain Modifications:

Businesses should start assessing their supply chains to identify areas where carbon emissions can be reduced. Investing in low-carbon technologies and sustainable practices not only helps in meeting CBAM requirements but also positions companies favourably in a market increasingly focused on sustainability.

4. Long-Term Planning and Investment:

The phased approach of CBAM implementation allows businesses some time to adjust. However, long-term contracts and procurement strategies should be revisited to incorporate future compliance costs and potential benefits from low-carbon investments. Engaging in decarbonisation now can unlock various grants and incentives, aiding businesses in this transition period​. But getting started early will help you get there in a few short years!

5. Broader Regulatory Compliance:

The introduction of CBAM signals a broader move towards stringent environmental regulations globally. UK businesses should view this as a call to align with international sustainability standards, thereby mitigating regulatory risks and enhancing their market position​. The EU's CBAM presents both challenges and opportunities for UK businesses. By focusing on reducing carbon emissions, ensuring robust data reporting systems, and strategically planning for future compliance costs, businesses can not only meet the new regulations but be well-placed to support their customers in or trading with the EU. Proactive engagement with these changes will be crucial for sustaining business growth and maintaining market share in the EU.

For businesses looking to stay ahead, it’s essential to act now. RfM Transform can develop comprehensive sustainability strategies that align with these new requirements. Don't wait until compliance deadlines are looming—get in touch today and ensure your business is not only compliant but driving your business towards environmental excellence.

+more Case Study: RfM Transform and DKP Consulting
+more The Green Economy: Small Businesses at the Forefront of Sustainability

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