UK CBAM Regulations Set Carbon Relief Rules for 2027

According to the statutory instrument published on legislation.gov.uk, the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026 were made by the Treasury and HMRC on 13 July 2026, laid before the House of Commons on 14 July 2026, and are due to come into force on 1 January 2027. MPs still have to approve them within the statutory 28-day window, with the clock paused for dissolution, prorogation or adjournments of more than four days. When we strip back the wording, the practical point is simple. The UK already created CBAM in the Finance Act 2026, and these regulations supply the instructions for how parts of the system will actually work. They explain how part of the tax rate is calculated, when importers can claim relief for carbon prices already paid overseas, and what proof HMRC expects to see.

**What CBAM is:** it is a border carbon charge on certain imported goods. The broad idea is that if UK producers face carbon costs through domestic climate policy, imports should not get an automatic price advantage simply because they were made under a looser or cheaper system elsewhere. So this is not only a trade rule. It is also a climate rule and a tax rule rolled into one. For readers trying to decode the jargon, it helps to think of CBAM as a question the state is asking at the border: what carbon cost sits inside this product, and how much of that cost has already been paid?

One part of the regulations deals with the domestic benchmark used in the CBAM rate. The Treasury says the average UK Emissions Trading Scheme price for the previous quarter must be worked out from the mean average of all auction clearing prices in that quarter. If there were no auction sales in that period, the rules say officials must fall back on the most recent quarter in which allowances were sold. That matters because CBAM is meant to reflect a real UK carbon price rather than a guessed one. The regulations also tie another step in the rate calculation to the same reduction factor used in existing UK ETS rules for the corresponding scheme year. You do not need every formula to grasp the point: the border charge is being tied back to the carbon pricing system already operating at home.

Relief is where many importers will look first. The regulations say an importer may reduce the CBAM charge on a good's emissions if the good was made or processed at an installation taking part in a qualifying carbon pricing scheme and the verification rules have been met. The relief rule even allows for participation on a voluntary basis, so long as the wider scheme meets the legal tests. **What counts as a qualifying scheme:** it must be publicly run, or run on behalf of a public authority, at city, regional, national or supra-national level. It must apply by law to all relevant installations, or to all those above a stated emissions threshold. It must also place a cost on relevant emissions, either directly or indirectly, and its rules, scope and headline carbon price must be publicly available.

The direct and indirect split is important. A direct carbon price is the simpler case: a plant pays a stated amount per tonne of carbon dioxide equivalent emitted during production. An indirect carbon price works differently. It can arise through charges on fossil fuels used at the installation, with the cost then connected back to emissions through recognised emissions factors. This is one of those technical points that changes real outcomes. Some countries price emissions at the point of release. Others build the carbon cost into fuel or related charges. The UK rules try to recognise both models, but only where the scheme is clear enough, public enough and structured enough to qualify.

Relief is not available on trust alone. The regulations require certain data to be verified, including the installation's relevant emissions for the calendar year, the share of those emissions actually subject to the foreign carbon pricing scheme, any rebates or refunds linked to that scheme, and the emissions factors used where the price is indirect. The verifier must be accredited to standards named by HMRC, accredited by a body that is a full member of Global Accreditation Cooperation Incorporated, and independent of the installation, the importer and the public authorities behind the scheme. In practice, that is a basic safeguard. If you want relief, someone suitably qualified and independent has to confirm the numbers.

Importers must also obtain an HMRC carbon pricing verification form completed by that verifier and provided to the installation that made the good. That form is not a side note. It is the document the importer must use when calculating the carbon price relief claim. The regulations then build an effective carbon price for each good. In plain English, you start with the installation's total relevant emissions for the year, identify which of those emissions were actually exposed to carbon pricing, apply the relevant price per tonne, average that figure across the total emissions, and then adjust it downward for any qualifying monetary support such as rebates or refunds. If precursor goods were used in production, the same logic has to be applied to them as well.

There is another wrinkle here that matters. The effective carbon price is not based only on a headline rate printed in a policy document. The regulations say the calculation must take account of features such as free allowances, thresholds, graduated carbon pricing, certain rebates or refunds, and payments for greenhouse gas removals where the scheme recognises them. In other words, the UK wants the real carbon price after the scheme's discounts and cushions have been taken into account. Once that effective carbon price is worked out, the importer can calculate the relief due by applying it to the emissions embodied in the good, ignoring emissions not subject to a qualifying scheme. If the result is in a foreign currency, it must be converted into sterling using the method set out in an HMRC notice. The regulations also cap the relief so it cannot exceed the CBAM liability itself.

Behind all of this sits another important document. The regulations rely on a system boundaries document, version 1.00 dated 10 July 2026, to decide which emissions, production processes, precursor goods and product weights count when measuring emissions embodied in a CBAM good. That may sound like background paperwork, but it can decide whether an emissions figure is narrow or wide, and that can change the amount due. Much of the finer operational detail will also sit in notices published by the Treasury or HMRC under these powers. **What this means for you:** from 1 January 2027, CBAM will not just be about paying a new tax. It will be about traceable data, recognised verification and solid record keeping. Importers claiming relief must keep the evidence, the verification form and the calculation records for six years after the end of the relevant accounting period. The message from the Treasury and HMRC is clear enough: if you want credit for carbon costs paid abroad, you will need to prove them carefully.