UK CBAM: what HMRC's illustrative rates mean for importers and their suppliers
HMRC published illustrative UK CBAM rates on 16 October 2026: aluminium £9.79, iron and steel £9.69, hydrogen £9.24, cement £8.78 and fertiliser £1.45, each per tonne of embodied CO2e. They are not the rates importers will pay from 1 January 2027. The actual charge depends on three things: the quarterly sector rate, the verified or default embodied emissions in the goods, and any qualifying carbon price relief.
HMRC has published its first illustrative rates for the UK Carbon Border Adjustment Mechanism (CBAM). They give importers a first real indication of how the charge will be worked out.
The figures were published on 16 October 2026 and cover aluminium, cement, fertiliser, hydrogen, and iron and steel. UK CBAM starts on 1 January 2027, but these are not the rates you will pay. HMRC says they are illustrative, not forecasts. The rates for the first quarter of 2027 will be published before the end of 2026.
If you import these goods, or buy from suppliers who do, this is a useful planning signal. But the headline rate is only one of three things that decide your bill. The others are your emissions data and any carbon price relief you can claim.
What is UK CBAM?
UK CBAM is a carbon charge on certain goods imported into the UK. It targets carbon leakage: the risk that UK climate policy simply pushes carbon-intensive production overseas.
The aim is for imports to face a carbon cost comparable to what UK producers face under the UK Emissions Trading Scheme (UK ETS).
From 1 January 2027 it applies to specified goods in five sectors:
- Aluminium
- Cement
- Fertiliser
- Hydrogen
- Iron and steel
Being in one of these sectors does not mean every product is covered. Scope is set by commodity codes, and some goods are excluded. For example, the relevant aluminium and iron and steel scrap codes are outside the initial scope.
The UK scheme is separate from the EU’s CBAM, which moved into its definitive phase in January 2026. We covered the EU changes in EU simplifies CBAM rules ahead of 2026 launch. A business trading with both markets needs to track both.
The illustrative rates
| Sector | Illustrative rate per tonne of CO2e |
|---|---|
| Aluminium | £9.79 |
| Iron and steel | £9.69 |
| Hydrogen | £9.24 |
| Cement | £8.78 |
| Fertiliser | £1.45 |
Source: HMRC, illustrative CBAM rates and worked example, published 16 October 2026.
These use the average UK ETS auction price for July to September 2026 and preliminary baseline data that is still being checked by the UK ETS Authority.
One point catches people out. The rate is per tonne of embodied CO2e, not per tonne of imported material. The steel figure is £9.69 per tonne of relevant emissions, not £9.69 per tonne of steel.
How the rates are calculated
UK CBAM does not charge the full UK ETS price. UK producers get some allowances free, so the CBAM rate is reduced to reflect that.
The calculation is:
CBAM rate = average UK ETS price × [1 − (baseline free allocation % × phase-out reduction factor)]
HMRC’s cement example uses:
- an average Q3 2026 UK ETS price of £58.15 per tonne of CO2e
- a cement baseline free allocation of 87.1%
- a 2027 phase-out reduction factor of 97.5%
That gives about £8.78 per tonne of CO2e. HMRC notes that published figures are rounded, so working it through with the displayed inputs may not land exactly on the published rate.
The 97.5% does not mean importers pay 97.5% of the UK ETS price. It is applied to the free allocation percentage before the chargeable share is worked out.
Will the rates go up?
The phase-out of free allowances puts upward pressure on rates, all else being equal. As less UK production is covered by free allowances, the reduction shrinks.
But rates also move with the UK ETS auction price, and they will be updated quarterly. Do not assume a straight line upward, and do not treat the October figures as a 2027 budget number. Model a range instead.
Who needs to check their position?
The minimum registration threshold is £50,000 of in-scope CBAM goods. That is measured on the value of relevant imports, not your turnover or total spend.
There are backward-looking and forward-looking tests. You need to consider relevant imports over the previous 12 months, and whether you expect to reach £50,000 over the next 30 days. Imports made before 1 January 2027 do not count towards the threshold, and some goods are excluded from it. Check the detailed registration rules against your own circumstances.
The liable person is generally the importer, meaning whoever the customs declaration is made by or on behalf of. Appointing an agent does not automatically move the liability.
If you buy from UK suppliers, you may not be directly liable. But if those suppliers import covered goods, you can still feel the effect through price changes. That makes CBAM a procurement and commercial planning issue, not only a tax one.
How the actual bill is worked out
In simple terms:
CBAM liability = (relevant embodied emissions × sector rate) − qualifying carbon price relief
The charge is based on relevant direct emissions in the imported goods. The rules can also require emissions from relevant precursor goods used in production.
A simple example: an importer has 1,000 tonnes of relevant embodied CO2e in in-scope iron and steel goods. At the illustrative £9.69 rate, the charge would be £9,690 before any relief. That is arithmetic, not an estimate for a real shipment and not a 2027 rate.
Why supplier emissions data matters
You can work out embodied emissions using either:
- actual emissions data, verified to the UK CBAM requirements
- government default values
Actual data has to come from the relevant production supply chain and be backed by qualifying verification evidence. A general supplier sustainability statement does not count.
Do not assume actual data will always lower your charge. It depends on how the supplier’s emissions intensity compares with the default. Weigh that against the cost and effort of getting the data.
Can overseas carbon pricing reduce the charge?
Potentially. Relief may apply where the emissions were subject to a qualifying carbon pricing scheme and you hold the required evidence.
It is not automatic. You need the right verified information, including a valid carbon pricing verification form, and you must calculate relief under the rules. Total relief cannot exceed the CBAM liability.
A supplier saying it “already pays a carbon tax” is a starting point only. You need to confirm the scheme qualifies and the evidence is enough.
What to do now
- Check product scope. Compare your commodity codes against the official list. Broad labels like “metal products” are not enough.
- Review import values and who is liable. Identify the importing entity and test it against the registration thresholds.
- Ask suppliers for emissions data. Find out whether they can provide product emissions intensity, production information and verification evidence.
- Compare your data options. Model exposure using defaults and any compliant actual data. Record your assumptions.
- Look into carbon price relief. Check whether overseas carbon pricing applies and whether suppliers can evidence it.
- Name an internal owner. Put procurement, finance, customs and sustainability in one process with clear responsibility.
Our view: treat CBAM as a supply chain data problem
The headline rates are useful, but they are not the whole story.
If you import, start with one register of affected products, commodity codes, import values, supplier details and emissions evidence. That gives finance and procurement a clear basis for sizing exposure and spotting gaps.
If you sit further down the chain, the first job is simpler: ask your suppliers whether they expect CBAM to change pricing or purchasing terms.
The best preparation links carbon information to commercial decisions, so supplier conversations, budgets and purchasing rest on evidence, not guesses.
Need to understand what UK CBAM could mean for your business? Speak to Sustainable Business Services about reviewing your supply chain carbon data and identifying practical next steps.
Frequently asked questions
When does UK CBAM start?
UK CBAM applies to imports of specified aluminium, cement, fertiliser, hydrogen, and iron and steel goods from 1 January 2027. The first liability period runs from 1 January to 31 March 2027, and HMRC will publish the rates for that quarter before the end of 2026.
Are the illustrative CBAM rates the rates importers will pay?
No. HMRC published the October 2026 figures as illustrative only. They use the average UK ETS auction price for July to September 2026 and preliminary free allocation data that is still being checked, and HMRC says they should not be read as forecasts or as the rates that will apply when liability begins.
What is the illustrative UK CBAM rate for iron and steel?
£9.69 per tonne of embodied CO2e. The rate applies to the relevant emissions in the goods, not to each tonne of steel imported. Aluminium is £9.79, hydrogen £9.24, cement £8.78 and fertiliser £1.45, all per tonne of CO2e.
Who has to register for UK CBAM?
The liable person is generally the importer, and registration is required once in-scope CBAM goods reach £50,000 in value. There is a forward-looking test, whether you expect to reach £50,000 in the next 30 days, and a backward-looking test over the previous 12 months. Imports made before 1 January 2027 do not count.
Can supplier emissions data reduce a UK CBAM charge?
It can, but not automatically. Embodied emissions can be calculated using actual data verified to the UK CBAM requirements instead of government default values. Whether that lowers the charge depends on how the supplier’s emissions intensity compares with the default, so the cost of getting verified data should be weighed against the likely saving.
Sources
- HMRC: Illustrative CBAM rates and worked example, 16 October 2026
- HMRC: Rates for the Carbon Border Adjustment Mechanism
- HMRC: Check if you’ll need to register for CBAM
- HMRC: Work out the date you’ll need to register for CBAM
Information checked against guidance available on 19 October 2026. Illustrative rates are not confirmed rates. Check current HMRC guidance and take specialist advice where needed.