The Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026

Published: Tue 14th Jul 26

These Regulations establish the technical framework for determining the UK Carbon Border Adjustment Mechanism (CBAM) rate and the eligibility for carbon price relief starting 1 January 2027.

The instrument directs HM Revenue and Customs and the Treasury to oversee calculations based on UK Emissions Trading Scheme auction prices and sets strict verification standards for importers seeking to reduce their CBAM liability.

It applies to importers of specified carbon-intensive goods, requiring them to calculate an effective carbon price paid in the country of origin and maintain comprehensive records for six years.

Arguments For

The regulations state that the average ETS price must be calculated based on mean auction clearing prices to ensure the CBAM rate reflects actual market values under the UK Emissions Trading Scheme.
The document specifies that carbon price relief is available to prevent double taxation for goods manufactured in jurisdictions that already impose a carbon cost.
Proponents argue that mandatory verification by independent, accredited verifiers ensures the accuracy of emissions data and carbon prices paid abroad.
The order asserts that calculating an 'effective carbon price' by deducting rebates and support received at the installation level provides a more accurate representation of the carbon cost actually incurred.

Arguments Against

Legal scholars may question the complexity of the 'effective carbon price' calculation, which requires importers to account for diverse foreign support schemes and graduated pricing structures.
Affected importers may face significant administrative burdens due to the requirement to keep detailed records for six years and obtain specific verification forms from foreign installations.
Implementation difficulties may arise if foreign installations are unable or unwilling to provide the granular emissions and pricing data required for the UK verification process.
The scope of 'qualifying carbon pricing schemes' is broad, potentially leading to legal ambiguity regarding which regional or municipal schemes qualify for relief.

Part 1 Preliminary matters

Citation and commencement

These Regulations may be cited as the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026 and come into force on 1st January 2027.

This section establishes the official name of the regulations and sets the commencement date as 1 January 2027.

This aligns the effective date of these rules with the broader implementation of the Carbon Border Adjustment Mechanism.

Interpretation

[Provides definitions for terms including 'average ETS price', 'carbon price', 'carbon pricing scheme', 'carbon pricing verification form', 'effective carbon price', 'elements of a qualifying carbon pricing scheme', 'emissions factor', 'emissions trading scheme', 'headline carbon price', 'indirect carbon pricing scheme', 'installation', 'precursor good', 'qualifying carbon pricing scheme', 'relevant elements of a qualifying carbon pricing scheme', 'relevant emissions', 'system boundaries document', 'tonne', and 'verifier'.]

This section provides legal definitions for technical terms used throughout the document.

Key definitions include 'effective carbon price', which refers to the actual cost per tonne of carbon paid by a foreign facility after accounting for support, and 'precursor goods', which are components used to manufacture other regulated goods.

Part 2 Calculation of the CBAM rate

Calculation of the average ETS price

Where Step 1 of the calculation set out in section 149(3) of FA 2026 requires the Treasury to calculate the average price per tonne of specified emissions under the UK Emissions Trading Scheme in the quarter preceding quarter Q ('the average ETS price'), that price is to be determined by-

(a) calculating the mean average of all auction clearing prices for UK ETS allowances during the quarter preceding quarter Q, or
(b) if no allowances were sold at auction during the quarter preceding quarter Q, calculating the mean average of all auction clearing prices for UK ETS allowances for the most recent quarter in which allowances were sold at auction.

This section mandates the method for determining the average UK Emissions Trading Scheme (ETS) price, which is a component of the CBAM tax rate.

The Treasury must use the mean average of auction prices from the previous quarter or the most recent quarter with successful auctions.

Adjustment to be applied to the reduction of the average ETS price in relation to free allowances

-(1) The factor specified for the purposes of Step 2 of the calculation set out in section 149(3) of FA 2026 is the same factor that is set out in Article 16(14) of Commission Delegated Regulation (EU) 2019/331 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council, in relation to the corresponding scheme year( 6 ).

(2) For the purposes of paragraph (1), a 'scheme year' has the meaning given in regulation 4 of the UK ETS Order( 7 ).

This section specifies the adjustment factor to be used when accounting for free emission allowances in the CBAM calculation.

It adopts the reduction factors already established in retained EU regulations for specific scheme years up to 2030.

Part 3 Availability of carbon price relief

Conditions for claiming carbon price relief

An importer may claim carbon price relief to reduce the amount of CBAM charged on emissions where-

(a) a good has been manufactured or processed by an installation participating in a qualifying carbon pricing scheme, including where such participation is on a voluntary basis, and
(b) the requirements relating to verification in Part 4 of these Regulations have been met.

This section permits importers to lower their CBAM tax liability if the goods were produced under a recognized foreign carbon pricing program.

Relief is contingent upon the importer meeting specific data verification requirements.

Qualifying carbon pricing schemes

-(1) A qualifying carbon pricing scheme is a carbon pricing scheme-

(a) which is administered by or on behalf of-
(i) a city,
(ii) a province, state, region or a pair or group of provinces, states or regions, howsoever composed,
(iii) a national government, or
(iv) a supra-national organisation,

and in which the use of any revenue collected by the scheme is determined by or on behalf of such city, province, state, region, pair or group of provinces, states or regions, government or supra-national organisation,

(b) which requires that either-
(i) all installations that manufacture or process a CBAM good, or
(ii) all installations that manufacture or process a CBAM good and produce more than a specified level of relevant emissions,

participate in the scheme as a matter of law,

(c) which imposes a cost on relevant emissions produced by participants of the scheme in some or all instances, either directly or indirectly (an 'indirect carbon pricing scheme'), though the rules of the scheme may permit participants to fulfill their obligations by means other than payment of that cost, and
(d) the rules, scope and headline carbon price of which are made publicly available by the jurisdiction or entity administering the scheme.

(2) For the purposes of paragraph (1)(c)-

(a) a cost on relevant emissions is imposed directly by charging a price per tonne of carbon dioxide equivalent emitted by an installation during a manufacturing or processing process;
(b) a cost on relevant emissions is imposed indirectly by charging a price for the fossil fuels used at an installation during a manufacturing or processing process which is then multiplied by the applicable emissions factor taken directly from or calculated using the methodology of any of the sources identified in a notice published by the Treasury.

(3) The Treasury may publish a notice specifying the time period within which the information required by paragraph 1(d) must be published by the jurisdiction or entity administering the qualifying carbon pricing scheme.

This section defines the criteria for a foreign carbon tax or emissions trading system to be considered a 'qualifying scheme' for relief.

To qualify, a scheme must be government-administered, legally mandatory for relevant facilities, and transparent about its pricing and rules.

Part 4 Verification

Verification of certain data used in the calculation of the effective carbon price

-(1) The following data used to calculate the effective carbon price of a good must be verified by a person who meets the requirements set out in regulation 8-

(a) the amount, in tonnes of carbon dioxide equivalent, of relevant emissions produced in a calendar year by the installation from which the good was produced;
(b) the number of relevant emissions in that calendar year which were subject to an element of the qualifying carbon pricing scheme;
(c) the monetary support that an installation has received or is due to receive under a support scheme which meets the criteria set out in regulation 11(b);
(d) where the installation has been subject to an indirect carbon pricing scheme, the emissions factors used.

(2) [Defines 'elements of a qualifying carbon pricing scheme', including headline price, free allowances, and graduated pricing.]

(3) The Commissioners may publish a notice specifying the calendar year in relation to which data must be verified in accordance with paragraph (1).

This section lists the specific data points that must be independently verified to claim relief, such as the total volume of emissions and the amount of financial support the producer received.

It defines key elements like 'free allowances' (zero-cost emissions units) and 'graduated pricing' where costs increase with higher emissions.

Accreditation

The data set out in regulation 7 must be verified by a person ('a verifier') who meets all of the following requirements at the time of verification-

(a) the person is accredited to the relevant standards specified in a notice published by the Commissioners;
(b) the person is accredited by an accreditation body which is a full member of the Global Accreditation Cooperation Incorporated, a New Zealand incorporated society with the incorporation number 50223540;
(c) the person is independent of- [the installation, the importer, and the governing authorities of the scheme].

This section sets the qualification standards for individuals or entities performing the verification.

Verifiers must be accredited by bodies belonging to the Global Accreditation Cooperation Incorporated and must be independent of the importer, the producer, and the foreign government.

Carbon pricing verification form

-(1) An importer who intends to claim carbon price relief in relation to a CBAM good must obtain a carbon pricing verification form that has been completed by a verifier and provided by the verifier to the installation that manufactured the good.

(2) For the purposes of paragraph (1), a 'carbon pricing verification form' is a form published by HMRC which contains the further information and a declaration to be completed by the verifier, as specified in a notice published by the Commissioners.

This section requires importers to obtain a specific HMRC-published form to claim tax relief.

This form must be filled out by an accredited verifier and provided to the manufacturing facility.

Part 5 Calculation of carbon price relief

Responsibility of the importer to calculate relief due

An importer who intends to claim carbon price relief in relation to a CBAM good must use the data in the carbon pricing verification form to undertake the calculation of the carbon price relief in accordance with this Part.

This section places the legal responsibility for calculating the correct amount of tax relief on the importer.

The importer must use the verified data from the form described in regulation 9.

Relevant elements of a qualifying carbon pricing scheme

[Lists the elements to be included in calculating the effective carbon price, including headline prices, free allowances, thresholds, graduated pricing, refunds, and payments for removing greenhouse gases.]

This section identifies which parts of a foreign carbon scheme must be factored into the price calculation.

It specifically includes financial support like rebates or refunds if they are publicly documented and linked to the facility's emissions.

Calculation of the effective carbon price

-(1) The effective carbon price for a CBAM good must be calculated as follows- Step 1: Identify all relevant annual emissions. Step 2: Identify emissions subject to the carbon scheme. Step 3: Multiply covered emissions by price per tonne, excluding specific monetary support. Step 4: Divide total price by total emissions for an overall rate. Step 5: Deduct the value of monetary support received per tonne. (2) The Commissioners may publish a notice setting out further provision about the data that may be used. (3) Effective carbon prices for precursor goods must be calculated individually.

This section provides a five-step formula for calculating the 'effective carbon price.' The process determines a per-tonne cost by totaling prices paid for emissions and then subtracting any financial subsidies or rebates received by the producer.

Calculation of the carbon price relief due

-(1) The carbon price relief due in relation to a CBAM good must be determined according to the formula: A x B, where 'A' is effective carbon price and 'B' is embodied emissions subject to a scheme. (2)-(4) Commissioners may specify methods for precursor goods and use of default values. (5) Relief must be converted to sterling. (6) Relief cannot exceed the total CBAM liability.

This section sets the final formula for the monetary relief: the effective carbon price multiplied by the volume of emissions.

It limits the relief so that it never surpasses the total amount of CBAM tax owed.

Part 6 Conversion of carbon price relief into sterling

Exchange rate and procedure for currency conversion

Where an importer converts the amount of carbon price relief due for the good into its sterling equivalent in accordance with regulation 13(5), the exchange rate that must be used and the procedure to be followed in connection with conversion is that set out in a notice published by the Commissioners.

This section requires that relief calculated in foreign currencies be converted to British Pounds.

The specific exchange rates and conversion methods will be defined in future notices published by HMRC.

Part 7 Record keeping

Requirement to keep records relating to the calculation of carbon price relief

An importer who claims carbon price relief in respect of a CBAM good must keep- written records of evidence for the scheme, the verification form, and calculation evidence for a period of six years beginning with the day after the end of the accounting period to which the return relates.

This section imposes a six-year record-keeping requirement on importers who claim relief.

They must retain all evidence related to the foreign carbon scheme, the verification forms, and the calculations for their tax returns.

View Source

Culture and Sport Justice Transport

The Air Navigation (Restriction of Flying) (Cardiff) Regulations 2026

Tue 14th Jul 26

Prohibited unmanned aircraft from flying below 1,100 feet within a specific area of Cardiff on 16 July 2026.

Justice Transport

The Air Navigation (Restriction of Flying) (Dovestones Reservoir, Manchester) (Emergency) (No. 2) Regulations 2026

Tue 14th Jul 26

Established an emergency restricted flight zone below 3,000 feet around Dovestones Reservoir.

Justice Transport

The Air Navigation (Restriction of Flying) (Dovestones Reservoir, Manchester) (Emergency) Regulations 2026

Tue 14th Jul 26

Established a temporary restricted flight zone below 3,000 feet around Dovestones Reservoir due to a local emergency.

Economy Finance Technology

The Digital Communications and Contact Details Regulations 2026

Tue 14th Jul 26

Established a framework for HMRC to use electronic communications by default for specified tax matters and mandated the provision of digital contact details by service users.