The UK government today published a non-exhaustive list of schemes that will qualify as a carbon price already paid in the country of origin for goods imported under its upcoming carbon border adjustment mechanism (CBAM).
The list currently includes the emissions trading systems (ETSs) of the EU, China, Japan, Kazakhstan, South Korea, Montenegro, New Zealand and Switzerland, as well as carbon taxes in Chile, Serbia, Singapore and South Africa, the Australian safeguard mechanism, Canada's federal output-based pricing system, India's carbon credit trading scheme, and Taiwan's carbon fee.
The government will publish an update "in due course" as further schemes are assessed, it said, as it is "aware" that some regional schemes may already meet the criteria it set out last month, while other schemes in development could qualify in the future.
To claim relief on their UK CBAM obligations, importers must first calculate the effective carbon price already paid by taking the total installation emissions and identifying how many were subject to the different elements of the qualifying pricing scheme — the headline price payable, any additional price beyond this, free allowances received, payments for greenhouse gas removals, and the thresholds above or below which emissions are charged.
The emissions subject to each element are then multiplied by the price per tonne of CO2 equivalent for each element in the previous calendar quarter — using a mean average if the price is not fixed — and added together. The total figure is then divided by the original total installation emissions.
Carbon price relief is then calculated by multiplying the effective carbon price by the embodied emissions covered by the scheme for the relevant goods. This amount is converted into pounds sterling and subtracted from the CBAM liability.
UK CBAM will start on 1 January 2027, applying an effective carbon price to specified goods imported into the UK in the aluminium, cement, fertiliser, hydrogen, iron and steel sectors.
