UK exporters face liability for EU CBAM payments as carbon market dips

Mon 2 Oct 2023
Posted by: Benjamin Roche
Trade News

green planet, trade

Firms exporting from the UK could be forced to pay out when the EU Carbon Border Adjustment Mechanism (CBAM) enters its ‘definitive period’ in 2026, as the UK’s Emission Trading System (UK ETS) prices continue a months-long decline.

Plummeting prices

The FT reported on the fall, with UK emission prices dropping to less than half of the equivalent EU price. The CBAM, designed to ensure markets do not charge emitting exporters at the same rate as the EU, could mean UK firms will have to make up the difference.

Last week’s UK ETS price of £33 per tonne marks the lowest ever rate. It comes following a series of announcements by prime minister Rishi Sunak delaying or scrapping UK net zero targets.

The drop could alarm UK manufacturers in particular, especially those involved in the industries targeted by the CBAM: cement, electricity, fertiliser, iron and steel, aluminium and hydrogen.

Implementation

CBAM entered its initial implementation phase yesterday (1 October), with firms now required to report on the carbon emissions produced by their supply chain or select from a set of estimates if the information is not available.

From 1 January 2026, however, the measures will be fully implemented, and certificates will need to be purchased in order to offset the level of carbon emitted by exporters. This will apply only if the country exporting to the bloc has a carbon price lower than the EU.

Implications

Anna Doherty, senior trade and customs specialist at the Institute of Export and International Trade, said last week that UK firms would need to be aware of the CBAM measures and their implications:

“What businesses need to remember is that, even though we’re no longer in the EU, they might still have responsibilities for compliance because of their supply chains.”

Marcus Ferdinand, chief analyst at Veyt, a carbon consultancy, told the FT:

“The total UK exporters would pay to the EU could easily rise into the hundreds of millions of pounds by early next decade, if the gap in carbon prices remains.”

Government response

A response from the Department for Energy Security and Net Zero cited a cut to the UK ETS emission cap starting next year. However, extra carbon allowances for businesses, to be released between 2024 and 2027, also kept carbon prices sliding when both measures were announced in July.