The government-issued document proposes calculating the UK CBAM costs for each quarter based on the average UK ETS auction prices from the previous quarter. Additionally, it suggests an adjustment to the UK ETS price to reflect the presence of free allocations in domestic industries.
Furthermore, the government states that if imported CBAM goods are subject to a clear carbon price in another country, and the liable person provides supporting documentation, this carbon price may be deducted from the UK CBAM liability. However, carbon prices paid in non-UK jurisdictions must be verified by an independent third party, and liable persons are expected to provide appropriate evidence.
Administration, Payment, and Compliance of UK CBAM
Administration Process
This section of the announcement outlines key elements of the UK CBAM administration process, including the tax point, the liable person, and a proposed minimum registration threshold to ease administrative burdens.
The tax payable under the UK CBAM is generally proposed to arise when the CBAM product is released for free circulation within the UK.
Liable Person
The liable person, responsible for registration, filing declarations, and making payments under the UK CBAM, is defined as the person responsible for the goods when they are released for free circulation or, where no customs supervision exists, the person who brings the goods into the UK.
Compliance and Penalties
To ensure compliance with the regulations, the UK CBAM will include various enforcement mechanisms. Her Majesty’s Revenue and Customs (HMRC) will leverage its existing audit and inspection powers applicable to other taxes to oversee UK CBAM obligations.
Next Steps
- Stakeholder Engagement
HMRC and the Treasury will establish a CBAM Industry Working Group to engage with key stakeholders representing the sectors most affected by the UK CBAM. This group is expected to become operational shortly.
- International Collaboration
An international CBAM group will also be formed to include exporters from other countries, mirroring aspects of the European Union’s Carbon Border Adjustment Mechanism (EU CBAM).
- Legislative Framework
Like the EU CBAM, the UK CBAM will require both primary and secondary legislation. HMRC will share draft regulations with stakeholders before presenting them to Parliament, allowing for feedback and assessment of whether the proposed legislation meets its policy objectives.
- Support and Guidance
To assist liable persons in fulfilling their obligations and help overseas operators and verifiers adapt to the new requirements, HMRC will prepare a comprehensive communication package and detailed guidance materials.
The UK CBAM represents a critical step toward aligning domestic and international efforts to address carbon leakage and support climate objectives. The upcoming engagement and legislative activities will play a pivotal role in shaping its implementation and effectiveness.