The Carbon Border Adjustment Mechanism (CBAM) is the European Union's flagship instrument to prevent carbon leakage — the risk that production of carbon-intensive goods shifts to countries with lower environmental standards to avoid EU carbon pricing. For UK exporters to the EU in the affected sectors, CBAM is already operational and demands immediate attention. What Is CBAM? CBAM places a carbon price on imports of certain goods entering the EU, reflecting the carbon price that would have been paid had those goods been produced under the EU Emissions Trading System (EU ETS). In effect, it is a border carbon adjustment that levels the playing field between EU producers (who pay for carbon under the ETS) and foreign competitors (who may face lower or no carbon costs). Covered Sectors (Phase One) The initial CBAM scope covers six sectors: 1. Steel and Iron 2. Aluminium 3. Cement 4. Fertilisers 5. Electricity 6. Hydrogen The European Commission has signalled that the scope will expand in future phases, potentially to include chemicals, polymers and other carbon-intensive products. The Transitional Period: 2023–2025 CBAM entered its transitional reporting phase on 1 October 2023. During this period, EU importers are required to submit quarterly reports on the embedded carbon content of imported goods — but no financial payment is required yet. The transitional period runs until 31 December 2025. From 1 January 2026, the definitive phase begins: EU importers will need to purchase CBAM certificates to cover the carbon content of their imports, with the certificate price linked to the EU ETS carbon price. What UK Exporters Must Do Now While the obligation technically falls on the EU importer, the data required for CBAM reporting — embedded carbon emissions per tonne of product — must come from the exporter or producer. This is a critical point that many UK manufacturers have been slow to appreciate. UK exporters need to: 1. Calculate embedded carbon emissions for their products. This involves direct emissions from the production process and, in some cases, indirect emissions from electricity consumption (especially relevant for aluminium and steel). 2. Provide data to EU customers. EU importers will need verified carbon data from their UK suppliers to complete CBAM quarterly reports. Exporters who cannot provide this data risk losing EU customers to alternatives who can. 3. Prepare for third-party verification. From 2026, embedded carbon data will need to be verified by an accredited third-party verifier. 4. Understand the financial implications. The cost of CBAM certificates will depend on the EU ETS carbon price at the time of import. As of 2024, EU ETS allowances have traded between €50–€70 per tonne of CO2. For high-carbon products, this represents a meaningful cost increase. Implications for UK Carbon Policy The UK Government is developing its own Carbon Border Adjustment Mechanism, aligned with the UK ETS, with introduction expected from 2027. UK producers selling domestically will face equivalent pressures. Businesses operating in both markets should monitor both the EU CBAM implementation and UK CBAM consultation closely. Getting Ahead of the Curve The businesses that will be best placed as CBAM matures are those that: - Have already begun calculating and documenting embedded carbon at product level - Have communicated proactively with their EU customer base about carbon data provision - Have begun investing in decarbonisation of their production processes to reduce future CBAM exposure - Have sought specialist trade compliance and sustainability advisory support TCSA works with trade advisory professionals who can assist exporters in assessing CBAM exposure and preparing appropriate compliance documentation. Organisations requiring specialist support can submit a procurement brief through the TCSA service search platform. Conclusion CBAM is not a distant regulatory risk — it is already operational in its reporting phase and becomes financially binding from 2026. UK exporters of affected goods to the EU should treat CBAM readiness as an immediate business priority, not a future compliance exercise.