UK CBAM Carbon Price Relief: how importers can claim for overseas carbon prices

Under the UK Carbon Border Adjustment Mechanism (CBAM), a qualifying carbon price paid overseas may reduce an importer's UK liability from 2027. The reduction is not automatic: HM Revenue and Customs (HMRC) requires installation-level evidence, independent verification and a calculation that accounts for free allowances, thresholds, removals and compensation.

A supplier may say that its factory already pays a carbon tax or participates in an emissions trading scheme. For UK CBAM, that statement is only the beginning. The importer must connect the scheme to a covered good, show that it qualifies under UK rules and calculate the effective carbon price borne by the installation.

The headline carbon price is not the relief. It is one input. A scheme quoting $15.50 per tonne can produce a lower effective price when part of the installation's emissions receives free allowances, and compensation can reduce the amount again.

This is the narrower calculation and evidence route within the wider UK CBAM 2027 regime. Importers should first establish whether their goods and import value are in scope, then assess whether Carbon Price Relief is available.

A foreign carbon price is not automatically deductible

HMRC says a qualifying scheme must be run by or on behalf of a government or supranational organisation. Its rules, scope and headline carbon price must be public, and covered installations must face a legally required emissions cost. A carbon tax, emissions trading scheme (ETS) or border scheme that prices embodied emissions may qualify.

Voluntary carbon-pricing programmes do not qualify, even if a public body operates them. Fuel duties also fall outside the definition because they charge by a unit of fuel rather than directly or indirectly pricing production emissions per tonne of carbon dioxide equivalent.

An installation below a mandatory participation threshold can still be relevant if it has voluntarily joined a scheme that otherwise meets the qualifying criteria. The scheme remains the legal framework; the installation's participation is the voluntary part.

The evidence begins at the installation

The importer is responsible for obtaining a completed carbon pricing verification form from the installation that made or processed the good, either directly or through the supply chain. A separate form is needed for each good for which relief is claimed, including a CBAM good used to manufacture or process another CBAM good.

The form records the installation's total emissions for one of the two calendar years before the year of import. It also breaks those emissions into the parts covered by the scheme, such as the headline price, graduated prices, free allowances, thresholds, recognised greenhouse gas removals and compensation.

An independent body must verify the form. HMRC requires the verifier to be accredited through a recognised accreditation system and to meet the relevant International Organization for Standardization (ISO) standards for environmental information and greenhouse gas verification. Without a correctly completed form and an appropriate verifier, the importer cannot claim the relief.

The form does not contain every price needed for the calculation. The importer must also gather public information from the scheme administrator or an organisation publishing on its behalf. That includes the headline and graduated prices, recognised removals prices and any compensation due.

How HMRC calculates the effective carbon price

The calculation spreads the carbon cost across all installation emissions, not only the tonnes that paid the headline rate. HMRC sets out four stages:

1. Take the installation's total verified emissions from the form.
2. Separate those emissions by each element of the qualifying scheme.
3. Multiply the emissions in each priced element by its applicable public price, then add the results.
4. Divide that total cost by the installation's total emissions.

Where a price is not fixed, the importer uses its mean average over the calendar quarter before the import. Free allowances and emissions below a threshold carry a price of zero. Removals without a public price are excluded, while compensation, refunds and rebates are dealt with after the initial calculation.

Worked example: $18.30 becomes $10.30

HMRC's example starts with an installation reporting 100,000 tonnes of carbon dioxide equivalent. Of those emissions, 60,000 tonnes face a $15.50 headline price, 20,000 tonnes are matched by removals priced at $45 and 20,000 tonnes receive free allowances.

Dividing $1.83 million by all 100,000 tonnes gives an effective carbon price of $18.30 per tonne. The free allowances do not create a cost, but their emissions remain in the denominator, so the calculation does not pretend that the whole installation paid the headline or removals price.

HMRC then introduces $800,000 of compensation. Spread across 100,000 tonnes, that compensation is worth $8 per tonne. Subtracting it from $18.30 leaves a net effective carbon price of $10.30 per tonne.

From the effective price to the relief claimed

The importer multiplies the net effective carbon price by the embodied emissions in the particular CBAM good that were subject to the qualifying scheme. This step keeps the claim tied to the imported product rather than applying an installation-wide total to every shipment.

The calculation also covers a CBAM good used in the manufacture or processing of another CBAM good, provided the relevant form and evidence are available. That can make precursor data important for products whose supply chains include several covered materials or processing stages.

A foreign-currency result must then be converted into pounds using HMRC's exchange rate for the calendar quarter before the import. HMRC says those rates will be published from 1 January 2027. The final figure is rounded down to two decimal places, and Carbon Price Relief cannot exceed the CBAM liability for the good.

Carbon markets can quote very different prices for different purposes. The Carbon Market Intelligence Dashboard helps separate regulated allowances, voluntary credits and other dated price indicators, but a market quote is not a substitute for the HMRC calculation.

What importers should request from suppliers

The evidence request should reach the production site, not stop at a general company sustainability report. A workable supplier pack needs enough information to connect the installation, scheme and imported good:

• the installation's legal name, location and role in producing or processing the good;
• the qualifying scheme and the public source for its rules and prices;
• total installation emissions for an eligible year;
• emissions allocated to headline prices, graduated prices, free allowances, thresholds and recognised removals;
• compensation, refunds or rebates received or due for the same year;
• the completed verification form and evidence of the verifier's accreditation; and
• a clear link between the verified installation data and each CBAM good in the claim.

Procurement may need to obtain the form, sustainability teams may review the emissions logic, and customs or finance teams may own the liability calculation. The hand-offs are easier when the request names the evidence required instead of asking a supplier whether its product is simply "low carbon".

For organisations still building a repeatable evidence request, the Scope 3 supplier data collection guide explains how to ask for boundary, methodology and assurance information without treating a questionnaire response as proof by itself.

Where a claim can fail

A claim can fail before any arithmetic begins. The scheme may not qualify, its prices may not be publicly available, the verification form may be missing, or the verifier may not meet HMRC's requirements.

The calculation can also overstate relief if it uses the headline rate for all emissions, ignores free allowances, leaves compensation undisclosed or applies a current spot price instead of the required prior-quarter average. A supplier's payment receipt does not resolve those boundary questions on its own.

The strongest preparation is therefore not a spreadsheet built in isolation. It is a documented chain from the production installation to the import entry, with public price sources and verification evidence alongside the calculation. UK CBAM makes the overseas carbon price relevant, but only the evidence determines how much of it counts.

Sources

• HMRC: check whether a carbon pricing scheme qualifies
• HMRC: carbon pricing verification form requirements
• HMRC: information needed to calculate Carbon Price Relief
• HMRC: Carbon Price Relief calculation and worked example
• Feature image: Felixstowe Container Port by Colin Smith, Creative Commons Attribution-ShareAlike 2.0, via Wikimedia Commons