The Carbon Border Adjustment Mechanism (CBAM) is a new European Union (EU) regulation, that puts a carbon charge on certain goods imported into the EU. It’s designed to make sure overseas products face the same carbon costs as goods made inside the EU that face the EU Emissions Trading Scheme charges (EU ETS). In simple terms, this means that the amount of carbon emitted during the production of a product now has a financial impact.
If you export covered products to the EU, this matters to your business. EU customers must report the embedded (or “embodied”) carbon emissions linked to the goods they import - and they will need UK SMEs to provide that data.
The primary objective of CBAM is to prevent carbon leakage; where production moves to countries with weaker climate rules to avoid carbon costs. Carbon leakage ultimately undermines the effectiveness of climate policies, and can lead to offshoring of emissions, rather than genuine reductions in product manufacture.
This guide is designed to help UK SMEs understand whether CBAM applies to their business and outline the steps to compliance.
The EU CBAM applies to EU importers bringing certain carbon-intensive goods into the European Union. The goods that the mechanism currently applies to are:
Certain downstream products may also be covered, such as some fabricated steel items, for example. The legislation lists specific Combined Nomenclature (CN) codes, which are used to define covered goods. This means that scope is not just determined by the broad product description e.g. Aluminium, but by the exact CN code used in customs declarations. Only the CN codes listed in Annex I of the CBAM regulations are in scope.
Although the UK has now left the EU, UK businesses are not exempt from CBAM related obligations. CBAM is relevant if a business exports covered goods to customers in the EU. UK manufacturers of in-scope products should provide verified emissions data to their EU importers to support customer compliance with this regulation. UK businesses may also supply input materials, or manufacture components used in covered goods, and may be requested by downstream customers in the UK to provide emissions data as part of a wider CBAM declaration. Likewise, manufacturers may outsource CBAM components for their products that, once processed, are later sold into the EU. Where this is the case, UK businesses may have to request data from their upstream supply chains in order to report the embedded emissions within their own products to their EU importer.
CBAM applies to your business if all the following criteria are met:
If all the above criteria apply, your goods are subject to CBAM. In which case the importer must report emissions and purchase CBAM certificates as required.
As a UK SME you will be required to provide verified emissions data to the importer in the EU for CBAM declarations.
In late 2025, the EU adopted an exemption to CBAM labelled the “de minimis threshold”. This is a new single mass-based threshold that exempts importers that bring in 50 tonnes or less (cumulative net mass) of CBAM covered goods into the EU per year. Electricity and hydrogen are excluded from this exemption.
Once you have determined that CBAM is applicable to your business and its products, you must now take steps to comply with the regulation. For UK SMEs, the most likely scenario is that you or your customer are using an EU importer or distributor. In this case, the legal CBAM obligation lies with the EU importer. Despite not being the importer yourself, you must still provide the verified emissions data relating to your CBAM covered products to the EU declarant. Data calculated must cover direct emissions (Scope 1) from production, and indirect electricity emissions (Scope 2) where applicable. Note: not all Scope 2 emissions are included – only those from electricity use. Calculation methods must follow specific EU CBAM methodology (detailed in the below section). There are also useful services that you may engage to assist with these calculations, such as Carbon Glance (linked in the Resources section), or specialist consultants in your area.
It is also important to recognise that some products may include components that are not manufactured by your business. In these cases, you should engage with the relevant suppliers to obtain Scope 1 and 2 emissions data for those components. These supplier values should then be combined with your own data to produce a single figure for the product’s total embedded emissions. This data must then be verified by a third-party accredited verifier. Verification should be discussed with your customer before commissioning.
From 1 January 2026, importers must plan to purchase CBAM certificates. The prices of which are informed by the embedded emissions data you provide to the importer and the EU Emissions Trading Scheme (EU ETS) carbon pricing. If importers can prove that a carbon price has already been paid during the production of the imported goods, the corresponding amount can be deducted.
It is possible that your business may have an EU subsidiary, in this case it is your EU counterpart that is legally responsible for compliance with CBAM. However your obligations remain unchanged, and such as the above, you will be required to submit verifiable emissions data to them.
Without formal, third party verification of your emissions data, importers will have to apply default carbon values determined by the EU. You will still be able to supply your product / material, but using the default values to estimate the embedded emissions will often provide an over-estimation when compared to directly calculated emissions from primary data. An over-estimation of emissions will increase the CBAM costs for the importer, which may prompt them to procure the products from a different UK company that can provide a verified carbon value.
Ensuring appropriate preparation for this will help avoid additional costs, reduce the likelihood of imports being delayed at customs, and as a result ensure that your business remains competitive in the EU market with minimal disruption.
To comply with EU CBAM requirements, UK exporters must provide EU importers with embedded emissions data for in-scope products. For many SMEs this may appear a new and complex requirement, particularly if emissions calculations have not previously been reported. The key figure that the importer will require is the total greenhouse gas emissions linked to the production of the CBAM covered goods. This is expressed in tonnes of carbon equivalent (CO2e) per tonne of product.
Obtaining this figure involves collecting operational data such as fuel use, electricity consumption and production output over a given reporting period. Direct emissions from onsite fuel combustion and industrial processes (Scope 1) must be included, along with indirect emissions from purchased electricity (Scope 2, where applicable). The emissions figure is calculated using approved emissions factors, these are available in a dataset provided by the UK government and are linked in the ‘Tools and Resources’ section of this document. These individual emissions components are added together and divided by the quantity of product produced in the reporting period to give an emissions intensity value per tonne of product. It is important that any data used in these calculations such as energy bills and production records are retained should they be requested in the verification process.
Process |
Example |
1. Gather DataThis data should come from meters, sub-meters, or an approximation from site totals. Where possible, isolate energy data that is solely contributing to the manufacture of the given product, e.g. machine sub-metering. |
Scope 1 (Natural Gas) = 300,00kWh Scope 1 (Electricity) = 90,00kWh |
2. Calculate Scope 1 emissions (direct)Direct emissions (tCO₂e) = Fuel use x Emissions Conversion Factor. |
300,000 x 0.20270 = 60,810 kgCO₂e 60,810 kgCO₂e / 1,000 = 60.81 tCO₂e |
3. Calculate Scope 2 (indirect)Indirect emissions (tCO₂e) = Electricity Use x Emissions Conversion Factor. |
90,000 x 0.17700 = 15,930 kg CO₂e 15,930 kg kgCO₂e / 1,000 = 15.93 tCO₂e |
4. Account for any supplier dataIf the product contains outsourced components, suppliers must be engaged for data on the embedded carbon of this component. |
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5. Calculate total emissions for the periodTotal emissions = Scope 1 + Scope 2 + Supplier data (If applicable). |
60.81 tCO₂e + 15.93 tCO₂e = 76.74 tCO₂e |
6. Calculate emissions intensity / tonne of productEmissions intensity (tCO₂e/t) = Total emissions / total production in reporting period. |
76.74 /120 = 0.6395 tCO₂e per tonne of Steel Pipes |
7. Calculate embedded emissions for the shipment (if requested)Shipment Emissions = Emissions intensity x Weight of shipment (in tonnes). |
Your data: 20 x 0.6395 = 12.79 tCO₂e Supplier Data: 20 x 0.2 = 4 tCO₂e 12.79 + 4 = 16.79 tCO₂e |
8. Data VerificationAll data must be verified by an independent accredited third-party verifier. |
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9. EU Importer pays CBAM chargesCBAM charge = Shipment emissions x EU ETS Price. |
Carbon Price: €75 per tCO₂e €75 x 16.79 = €1259.25 |
Please note that all values and calculations included in the worked example are for illustrative purposes only and do not represent actual project data, pricing figures may not be accurate or reflect current rates. Emissions factors are taken from the DEFRA 2025 emissions factor dataset.
CBAM initially operated under a transitional period, during which EU importers were required to submit quarterly reports on the embedded emissions relating to covered products. During this time, no CBAM certificates were required, and importers had more flexibility in using default values and simplified approaches. The intention of the transitional period was to allow businesses time to develop the systems needed to calculate their emissions data.
From 1 January 2026, CBAM has entered its definitive phase, and is now fully in force. EU importers must plan to purchase and surrender CBAM certificates corresponding to the embedded emissions of their imported goods (informed by data that may be submitted by UK businesses). The first annual declaration and surrendering of CBAM certificates for goods imported in 2026 is due 30 September 2027.
CBAM regulations are continually evolving, with the EU expected to expand coverage to additional sectors and downstream products over time. Whilst your business’ products may not be covered under current regulations, it is important that businesses are aware of changes and the likelihood that more products will be covered in future.
Businesses should be aware that the UK Government will be introducing a UK CBAM expected 1 January 2027 and keep up to date with this legislation. The current guidance available suggests that this will closely follow the EU CBAM requirements outlined by this document, with the significant difference being that UK businesses will be responsible for legal compliance with the regulation.
There are many tools and sources of further guidance to help assist businesses in compliance with their CBAM obligations. Please see below useful guidance documents, calculation tools and further information you may find useful.
