Businesses need to act now to avoid disruptions caused by EU’s Carbon Border Adjustment Mechanism (CBAM), an international trade expert has warned.
Manufacturers in the UK producing steel, iron, aluminium, cement, fertilisers, and hydrogen should act now to address the requirements of CBAM, a major regulatory shift that impacts trade with EU customers, according to David Hooper, managing director of international trade consultancy Hooper & Co.
The framework, which will come into force in 2026, is designed to reduce carbon emissions by imposing obligations on goods imported into the EU. While reporting requirements began in October 2023, the financial obligations start from January 2026.
David, who has more than 25 years’ experience advising businesses on international trade, says that while implementation will be phased in, there are a range of key issues that UK manufacturers need to address now, with regulatory milestones under the new rules fast approaching.
David said: “The new mechanism ensures imported goods meet the same carbon emissions standards as those produced within the EU, creating a level playing field for carbon costs, with plenty of knock-on effects for firms as they come to terms with the new requirements.
“At Hooper & Co, we are already helping firms get their affairs in order while the changes are being phased in.
“With just 12 months until full CBAM implementation, businesses need to be asking themselves if they can afford to wait.”
EU importers are already collecting quarterly CBAM reports as part of a transitional period allowing businesses to adjust before financial obligations begin.
These reports must detail the embedded emissions in goods covered by CBAM, including both direct and indirect emissions from production.
David said there are likely to be a number of risks for UK manufacturers, with 12 months to establish robust tracking systems and ensure compliance with CBAM requirements.
He said: “One change we are already starting to see is EU customers demanding carbon emissions data from UK suppliers – it’s vital that businesses are able to provide this data, meaning they need to implement these processes now to avoid losing business further down the line due to delays and complications.
“Many UK manufacturers export products involving indirect emissions from precursor materials, while complex goods like steel structures and aluminium components are likely to pose additional complications, so there is a lot to stay informed on.
“There is also a genuine risk of customer loss through EU buyers switching to compliant suppliers, and failure to provide accurate CBAM data risks losing access to the EU market completely.
“It’s also important to keep in mind that rushed or incorrect submissions could lead to financial penalties but also reputational damage if disruptions continue.”
To ensure firms avoid these potential pitfalls, David has advised businesses to think about the short-term steps they can take as well as long-term preparations.
To ensure firms avoid these potential pitfalls, David has advised businesses to identify if their products fall under CBAM-affected combined nomenclature codes; start measuring carbon emissions in production processes; set up systems to track both direct and indirect emissions; engage with EU customers about their CBAM requirements; and plan ahead if exporting on a delivered duty paid basis to support compliant reporting.
“As well as having the right processes in place, it’s also vital that businesses stay informed about changes to CBAM regulations and indirect emissions reporting in the next 12 months,” he added.
“The scope of CBAM is set to expand to more sectors by 2030, so even companies not currently affected should be preparing.”
For more information about CBAM and the changes businesses can make to ensure they are compliant, contact David Hooper at [email protected].