NFU Scotland Urges UK Government to Clarify Carbon Border Adjustment Mechanism
Farm businesses across Scotland are watching closely as the UK prepares to introduce its Carbon Border Adjustment Mechanism in early 2027. NFU Scotland has asked the government to explain how the policy will affect fertiliser imports and what this will mean for producers already dealing with high fuel and energy costs. The union wants answers before the mechanism goes live, not afterwards.
At stake is the future cost of nitrogen fertiliser, a major input for arable and livestock farms. Fertiliser production depends heavily on natural gas, so energy prices already play a large role in what farmers pay. Adding a carbon charge to imports could push those costs higher still. For growers managing tight margins, that matters.
The request for clarity comes as NFU Scotland calls for wider government action on farm input costs. Diesel, electricity and fertiliser have all remained expensive despite recent falls in wholesale energy markets. The union argues that without support and transparent pricing rules, some producers may cut back on production. That would carry risks for domestic food supply.
What the UK border carbon charge will cover
The Carbon Border Adjustment Mechanism is scheduled to start on 1 January 2027. It will apply a carbon charge to imports in six sectors initially. These are aluminium, cement, fertiliser, hydrogen, iron and steel. The aim is to stop UK businesses being undercut by overseas competitors in countries with weaker carbon pricing.
Under the policy, importers will need to keep records from the start date. Registration is expected to open a year later, on 1 January 2028. Businesses bringing in covered goods will have to provide emissions data and, in some cases, pay a charge based on the carbon content of what they import.
The charge will not be a fixed tax. Instead, it will reflect the UK carbon price, the emissions associated with production, and any free allowances still given to domestic producers under the UK Emissions Trading Scheme. The government has said rates will be updated every quarter as these variables change.
Fertiliser sits on that list because manufacturing nitrogen products releases significant carbon dioxide. Most UK fertiliser production uses steam methane reforming, a process that converts natural gas into ammonia. When gas prices spiked in 2022, several European fertiliser plants shut down temporarily. Farmers saw shortages and sharp price rises as a result.
NFU Scotland is concerned that the same volatility could return under the new mechanism. If imported fertiliser carries a carbon charge, suppliers may pass that cost down the chain. Farmers would see higher bills with little ability to pass costs on themselves. The union wants to know how much of the charge will reach farm gate prices and whether domestic and imported products will face equivalent burdens in practice.
How the carbon charge will be calculated
Calculating the charge will involve several steps. Importers must declare the embedded emissions in their goods. If reliable data exists, they can use actual figures. Where data is missing or unverifiable, the government will apply default emissions values. These defaults are typically set higher than average to encourage accurate reporting.
Once emissions are known, the charge is based on the prevailing UK carbon price under the Emissions Trading Scheme. However, importers may be able to claim relief if they can prove a qualifying carbon price was already paid in the country of origin. That relief mechanism is intended to prevent double charging and maintain trade relationships with jurisdictions that have comparable climate policies.
The structure creates uncertainty for agricultural suppliers. Fertiliser often moves through complex international supply chains. A bag of product sold in Scotland may contain imported ammonia, which itself was made using gas from a third country. Tracking emissions and carbon prices across that chain will not be simple.
Moreover, the quarterly rate updates mean prices could shift throughout the year. For farmers planning cropping decisions or negotiating annual contracts, that adds another layer of unpredictability. NFU Scotland has argued that without clear guidance on how calculations will work in practice, producers cannot budget effectively.
Fuel duty and electricity costs add to the pressure
The border carbon charge is not the only cost issue facing Scottish agriculture. Diesel remains a significant expense because it powers tractors, combines, and transport. Similarly, electricity is essential for refrigeration, irrigation, grain drying and livestock housing. Both have stayed expensive even as wholesale energy prices have eased.
NFU Scotland has called for temporary support to cushion fuel costs while prices remain elevated. The union has also asked for a review of how the carbon mechanism will interact with fertiliser availability and affordability. It wants government to monitor agricultural input markets more closely and share transparent data with producers.
Red diesel is a particular concern. This rebated fuel is widely used in farm machinery and currently attracts a duty rate of 6.48 pence per litre. That rate was reduced from 10.18 pence per litre as part of temporary measures to support farmers during the recent energy crisis. According to government figures, the reduction saves the sector almost £300 million annually.
The lower rate is scheduled to expire at the end of December 2026. NFU Scotland is calling for it to be maintained beyond that date rather than reverting automatically to a higher level. The union has also proposed an agricultural fuel rebate that would provide additional support when prices exceed an agreed threshold.
Andrew Connon, NFU Scotland president, said red diesel and electricity are fundamental costs of agricultural production. He emphasised that the pressures facing farm businesses are both significant and immediate. The union has asked for access to emergency energy assistance available to other sectors and proposed a Farm Energy Resilience Fund to support renewable generation and efficiency improvements on holdings.
The government has pointed to its fuel duty reductions and the extension of the general fuel duty cut through the end of 2026. A spokesperson said the measures were intended to support farmers and fishers during a period of unusually high costs. Nevertheless, NFU Scotland maintains that more targeted support is needed given the unique exposure of agriculture to energy market shocks.
Timing and scope of the new mechanism
Several key dates will shape how the policy unfolds. The Carbon Border Adjustment Mechanism begins on 1 January 2027 for the six covered sectors. Registration for importers is expected to open on 1 January 2028, though record keeping obligations apply from the earlier start date. The current red diesel duty reduction expires at the end of December 2026, creating a narrow window between the two policy changes.
That timing matters. If fuel costs rise in early 2027 and fertiliser prices follow later in the year, farm businesses will face compounding pressures. Input costs typically make up a large share of total production expenses, particularly for arable farms. A sustained increase in both fuel and fertiliser could squeeze margins significantly.
The government has stated that importers may claim carbon price relief where goods meet specified conditions. Verification and record keeping requirements will apply. However, the detailed calculation process remains unclear, especially for products like fertiliser where emissions may span multiple jurisdictions and supply chain stages.
NFU Scotland has highlighted that several practical questions remain unanswered. These include how much of any charge on imported fertiliser will appear in wholesale and farm gate prices, how the mechanism will account for emissions data from overseas producers, and how default values will be applied when reliable data is unavailable. The union also wants clarity on whether qualifying carbon prices paid abroad will reduce the UK charge and how the policy will interact with existing agricultural support schemes.
Essential details for farm planning
- The UK Carbon Border Adjustment Mechanism will begin on 1 January 2027 and initially cover six sectors including fertiliser.
- Importers must keep records from the start date, with registration expected to open on 1 January 2028.
- The carbon charge will be calculated using UK carbon prices, product emissions data, and adjustments for free allowances under the UK Emissions Trading Scheme.
- Red diesel duty currently stands at 6.48 pence per litre, down from 10.18 pence per litre, saving farmers almost £300 million annually according to government estimates.
- The temporary red diesel duty reduction is scheduled to expire at the end of December 2026.
- NFU Scotland is seeking clearer guidance on how carbon charges will affect fertiliser prices and calling for extended fuel duty support and emergency energy assistance for agriculture.
Questions the farming sector needs answered
For agricultural businesses, the gap between policy announcement and practical detail is the problem. Knowing that a carbon charge will apply to fertiliser imports from January 2027 is not the same as knowing what that charge will be, how it will be calculated for specific products, or whether domestic and imported goods will face equivalent costs.
Fertiliser suppliers typically set prices months in advance. Farmers often buy inputs in bulk during off-peak periods to secure better rates. Both practices depend on predictable costs. If the carbon charge remains undefined as the start date approaches, that predictability disappears.
NFU Scotland has raised specific concerns about emissions data. Fertiliser production involves complex chemistry and varies by plant, feedstock and production method. Emissions can differ significantly between manufacturers. If importers cannot provide reliable data, default values will apply. Those defaults are usually set conservatively, meaning actual charges could be higher than necessary.
There is also the question of how the mechanism will interact with carbon prices already paid overseas. The government has indicated that relief may be available where qualifying prices exist, but the criteria and verification process are not yet clear. For Scottish farmers buying imported fertiliser, that uncertainty translates directly into financial risk.
The union has argued that climate measures must be designed alongside food security considerations. Agriculture is already exposed to volatile energy and input markets. Adding another variable without clear safeguards or impact assessments could tip some businesses from viability into loss. NFU Scotland is not opposing emissions reduction, but it is seeking rules that account for the realities of farming.
Policy tension between climate action and food production
The debate reflects a broader tension in UK climate policy. The Carbon Border Adjustment Mechanism is intended to prevent emissions from simply moving abroad as domestic industry faces tighter rules. In principle, this can support fairer competition for UK producers and encourage cleaner production internationally. However, if compliance costs or carbon charges raise fertiliser prices without corresponding support for farmers, the policy could reduce domestic food production instead.
That outcome would undermine both climate and food security goals. Producing food closer to where it is consumed generally lowers transport emissions and reduces reliance on long supply chains. If UK farms cut output because input costs become unaffordable, more food will need to be imported. Depending on where it comes from, that could increase overall emissions rather than reduce them.
NFU Scotland has called for coordinated discussions involving the UK Government, Scottish Government and industry stakeholders. The union wants a response that addresses both immediate cost pressures and longer term policy design. For farmers, the issue is not whether to support climate action but how to do so without jeopardising their ability to produce food affordably.
The government's decisions over the coming year will determine whether the mechanism achieves its intended purpose. Publishing CBAM rates, issuing guidance on fertiliser imports, and clarifying the future of red diesel duty are all essential steps. Clear information before the mechanism begins will allow businesses to plan with confidence rather than uncertainty.
Where to find further information
The UK Government has published initial guidance on the Carbon Border Adjustment Mechanism. Details are available through the official gov.uk collection page for CBAM, which includes policy documents and technical notes on covered sectors.
For information on fuel duty rates and agricultural support measures, the Department for Energy Security and Net Zero provides updates on energy policy as it affects UK businesses. The Department for Environment, Food and Rural Affairs publishes guidance on agricultural policy and environmental regulation.
NFU Scotland publishes policy briefings and member updates through its website. Producers looking for sector specific analysis of input costs and regulatory changes can find resources there. For businesses needing support with carbon reporting or environmental compliance, our compliance services can help navigate the requirements as they develop.
The official legislation.gov.uk portal hosts the full text of UK laws and statutory instruments. As regulations for the Carbon Border Adjustment Mechanism are published, they will appear there alongside supporting explanatory notes. Checking official sources directly remains the most reliable way to confirm legal requirements and deadlines.