The UK government is weighing CBAM reforms that would widen scope and move closer to EU methodology, an early-stage plan that would change import costs for steel and other carbon-intensive goods.
The UK government is considering reforms to its Carbon Border Adjustment Mechanism (CBAM) that would widen its scope and bring its rules closer to the EU model, according to an official government presentation. The presentation is at a very early stage, and no decision has been taken. The CBAM reforms would follow the UK scheme’s start in January 2027.
Based on industry feedback, the government splits possible future reform into two groups. One group covers scope expansion. The other covers changes to the existing UK CBAM methodology.
How the two systems differ
The UK CBAM takes effect in January 2027. It charges carbon costs on emissions embedded in UK steel imports, matching what domestic producers pay under the UK Emissions Trading System (UK ETS). The EU’s CBAM started in early 2026, with payment through certificate surrender due in September 2027.
The specific values for calculating UK liabilities are not yet known. The UK method uses a single sector value for all default emissions values and for benchmark and rate metrics. That suggests UK costs will be much lower than the EU’s.
The EU uses punitive default emissions values to push importers to report and verify supply-chain emissions. If importers do not, costs can be high. Under EU default values, Indonesian-origin hot-rolled coil can carry carbon costs that exceed the import’s own price.
EU default values are generally high before mark-ups of 10% to 30% are added. If the UK adopts a single global average default, the most polluting origins would benefit. Producers with emissions above that average would lose any reason to report or improve, and the UK could become a destination for higher-carbon steel.
Carbon price deductions and the ETS link
The two systems also treat carbon prices already paid differently. The EU deducts them from the emissions volume. The UK deducts them directly from the price. That generally lowers UK costs because the UK ETS price is lower.
UK and EU talks on linking their emissions trading systems are continuing. Media reports say a final agreement has been reached ahead of summit discussions planned for November. Policymakers have suggested a link could allow CBAM exemptions in each jurisdiction. The reporting doubts the EU would grant full exemptions if cost differences between the systems stayed large.
Industry sources say they have raised the cost discrepancy repeatedly with UK CBAM policymakers. They report that authorities have been slow to respond.
The options on the table
The presentation shows the government considering a later move towards the EU version of the mechanism. The options include moving to the EU’s product-specific benchmarking, which would replace the current single sector rate based on free allocation coverage. They also include country-specific default values in place of the global sector average, and default values for carbon price relief deductions.
These methodology changes are not expected soon. They will not arrive in the first year of the UK scheme. If adopted, they would remove many of the mismatches between the systems and could make exemptions based on an ETS link easier to agree later.
The proposed scope expansion covers new products, sectors and indirect emissions. That mirrors the EU, which is legislating to extend CBAM to downstream manufacturing by 2028.
What importers should watch
Steel importers and UK buyers should treat any CBAM reforms as a signal and not a timetable. The UK has not yet published its liability values, and those values will show how large the cost gap to the EU really is. Earlier coverage of UK CBAM compliance requirements and of EU verification guidance and default values explains the compliance side.
The International Institute for Sustainable Development (IISD) has argued that carbon border measures across like-minded jurisdictions could support low-carbon trading clubs through mutual exemptions. The reporting concludes that this would require the systems to match closely in ambition and methodology. Without that, the CBAM reforms risk becoming administrative afterthoughts.
