www.bfpa.co.uk 53 and by funding the deployment of low carbon alternatives). This is especially true for first movers who must take on more risk and costs as they cut a path through the jungle for others to follow. The EU and UK are playing that role as climate leaders – taking a leap forward that is vital but creates costs that not every economy in the world is willing to bear: the carbon price. It is paid by businesses inside the EU and UK market, and businesses outside their borders aren’t necessarily paying it. As the cost of emissions rises in the internal market, suppliers from outside the border that don’t pay similar carbon costs appear more competitive, leading businesses from inside the borders (operators) to lose business opportunities and customers to high emitting, no- or low-carbon-price external competitors (exporters). That’s where Cross Border Adjustment Mechanisms come in. They artificially adjust the price of goods produced by exporters to integrate the carbon price they would have paid inside the borders. The goal is to cancel out any impact that the ETS has on the price-competitiveness of covered goods produced inside the borders, and to protect EU and UK businesses as the economy decarbonises. To do that, while the exact process in the UK hasn’t been agreed upon yet, we at least know that EU businesses that import EU CBAM-covered goods (importers) will need to report on emissions from their suppliers, as well as any carbon price that they have already paid. Once this is reported, by purchasing a CBAM certificate, they will effectively be paying the difference between the importing market’s carbon price and any carbon price already paid for the imported good in the exporter’s market. How can businesses navigate this shifting landscape? While the EU CBAM is already in its transitional phase, the UK CBAM is still in the planning stages, with consultations ongoing. Implementing CBAM has several implications for businesses, with variations depending on whether they are operating under the EU or UK system. Compliance and reporting are already underway for businesses within the EU. Since October 2023, importers have been required to submit quarterly reports on the embedded emissions of imported goods and any carbon pricing already paid in the country of origin. Starting from 2026, importers will need to purchase CBAM certificates to account for these emissions, with the cost based on the difference between the carbon price paid in the country of origin and the EU’s carbon price. The EU CBAM currently covers cement, aluminium, fertilisers, hydrogen, iron, steel, and electricity, and involves the purchase of CBAM certificates. In the UK, however, the timeline is less defined. Although the UK CBAM is expected to start in 2027, the specifics of the carbon price, payment process and reporting requirements are still being determined. Businesses operating in the UK must stay informed about these developments to ensure they are prepared to comply once the mechanism is implemented. The UK CBAM will initially cover similar sectors but has indicated that products from the glass and ceramic sectors may be considered for future inclusion, and could require the payment of a tax charge, though this may change as consultations progress. For businesses affected by CBAM, responsibilities can be categorised into three main roles that we have already touched upon: importers, exporters, and operators. Importers within the regulated market (EU/UK) that import goods covered by CBAM are responsible for reporting emissions and paying for the carbon price adjustment. Exporters outside the regulated market must provide emissions data and report any carbon pricing paid in their country. Operators within the regulated market benefit from free allowances but must decarbonise as these allowances are being phased out. The EU has set a clear timeline for the phase-out of free allowances from 2026 to 2034, while the UK’s timeline is less defined but is likely to follow a similar trajectory. To navigate the shifting CBAM landscape, businesses should take several proactive steps. Importers, exporters, and operators will need to educate and train staff responsible for compliance and reporting. Staying informed about CBAM rules and regulations updates will also ensure ongoing compliance, including changes in reporting requirements, covered sectors, and certificate purchase obligations. Additionally, businesses will benefit from engaging with policymakers to represent business interests during CBAM consultations, especially in favour of support for decarbonisation efforts. For exporters in particular (e.g. UK businesses supplying EU businesses), developing robust systems for collecting, verifying, and reporting emissions data is crucial. It is important to note that reporting on the emissions of goods will be the result of a calculation that is distinct from any footprinting businesses may have already done for their operations, as CBAM is product focused. Importers will need to pay the carbon price after having reported emissions on CBAM-covered goods (in the EU, an online portal is available). They need to engage with suppliers to gather emissions and carbon payment data and encourage them to adopt cleaner production practices. UK importers can do the same to prepare for upcoming CBAM-induced fluctuations in the cost of materials and products. Decarbonisation through low-emission investments and procurement will reduce CBAM-related costs. Exploring opportunities for innovation and collaboration to drive decarbonisation efforts will help also contribute to that end. Finally, operators from the UK and the EU should keep up to date with any ETS phase-out of free allowances. In summary, due to how the system is designed, all businesses involved with the trade of CBAM-covered goods will benefit from decarbonising, and businesses that decarbonise in the market will be operating on a level playing field.
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