The Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026

James Murray Excerpts

Monday 12th October 2026 General Committees

[The Financial Secretary to the Treasury and Paymaster General (James Murray)]

I beg to move,

That the Committee has considered the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026 (S.I., 2026, No. 809).

Should I speak now, Mr Stringer? I have not done a statutory instrument in a few months, so I am just recalibrating.

[The Chair]

Yes, it is normal for the Minister to introduce the instrument.

[James Murray]

Thank you for the quick explainer, Mr Stringer. It is a pleasure to serve on this Committee and to see you in the Chair.

The regulations form an important part of the legislative framework for the UK’s carbon border adjustment mechanism. The core framework for CBAM has already been set out in the Finance Act 2026, but the regulations provide further detail on two important aspects of its operation. Mainly, they establish how and under what circumstances liable persons can claim relief for charges paid under overseas carbon pricing schemes; they also provide additional clarity on how the CBAM rate should be calculated in practice.

CBAM is a new environmental tax that will apply from 1 January 2027. It will apply to specified goods in five highly traded carbon-intensive sectors: aluminium, cement, fertiliser, hydrogen, and iron and steel. The reason for introducing CBAM is clear: to support the UK to decarbonise, domestic producers face carbon costs that encourage investment in cleaner and more efficient production. Without CBAM, there is a risk that production and associated emissions will simply move overseas to jurisdictions with lower carbon costs, leading to what is known as carbon leakage rather than to a true reduction in global carbon emissions.

CBAM is designed to address the risk of carbon leakage by ensuring that imported goods face a carbon price comparable to what manufacturers would pay were they producing the same goods in the UK. In doing so, it supports our decarbonisation objectives and gives UK producers the legislative support that they have called for to bolster their confidence in investing in the transition to net zero.

The regulations put this idea into practice by creating a mechanism that ties the CBAM rate to domestic carbon prices. They set out that the CBAM rate is to be calculated by taking the quarterly mean average of the UK emissions trading scheme auction price, and how the free allocation adjustment is to be applied to reflect the upcoming phase-out of free allowances to domestic industry.

[Luke Myer (Middlesbrough South and East Cleveland) (Lab)]

Can the Minister explain why the Government are proceeding with the removal of free allowances when there is no contingency plan if the UK’s CBAM fails to prevent carbon leakage?

[James Murray]

The mechanism of removing free allowances is part of the transition to the new system. Under the new system, the CBAM price will ensure that those industries within the UK that are investing in decarbonisation are not disadvantaged by industries moving overseas. If the industries move overseas to areas that have a higher carbon intensity, they could be at an advantage relative to the industries here in the UK. It is about levelling the playing field for businesses operating in the UK.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

The Minister mentioned that fertiliser will be affected by the CBAM. Farmers are rightly concerned about how this will impact them. Some farming organisations have indicated that this might increase the price of fertiliser by up to £70 a tonne, which will obviously have a big impact on the price of food. When will the rate for fertiliser be set, and when will it be announced?

[James Murray]

Although fertiliser production is emissions-intensive, the effective carbon price paid by UK-based fertiliser manufacturers has been extremely low because of the allocation of free allowances to that sector. As a result, we expect initial liabilities to be very modest for imported fertilisers. To support transparency and to help businesses to prepare, the Government will publish illustrative CBAM rates very shortly, which will provide a clear indication of the likely scale of the charge that may apply to fertiliser imports when the CBAM comes into force.

I should emphasise that CBAM is not a protectionist measure, nor is it designed to raise revenue. Its purpose is to ensure that imported goods face carbon costs comparable to those that our domestic industry faces, as I set out in response to my hon. Friend the Member for Middlesbrough South and East Cleveland. It is therefore only right that, where the emissions embodied in an imported good have already been subject to qualifying a carbon price overseas, those costs are recognised and relief is made available. Importers of goods produced under schemes that align with the criteria, such as the EU emissions trading scheme or the Canadian federal output-based pricing system, should not pay twice for the same emissions. Those are just two examples; a list of all the national schemes that the Treasury recognises as qualifying carbon pricing schemes has been published on gov.uk.

The regulations establish the framework for claiming this relief. They define the characteristics of a qualifying carbon pricing scheme, set out how an effective carbon price should be determined and specify the evidence and independent verification required to support a claim for carbon price relief.

The Government remain committed to a full consultation throughout the development of CBAM, and that has included a technical consultation of the regulations before the Committee today. A small number of technical and clarificatory changes were made following that consultation, as is set out in paragraph 7.3 of the explanatory memorandum. Those changes improved the operation and clarity of the regulations without altering the policy intent. Engagement has not been limited to formal consultation. The Treasury and HM Revenue and Customs continue to work with domestic businesses, trade bodies, verifiers, international partners and other interested stakeholders and remain committed to ongoing engagement as CBAM comes into force on 1 January 2027 and beyond.

In summary, the regulations implement important aspects of the CBAM framework already approved by Parliament in the Finance Act 2026. They provide clarity on carbon price relief, including when it is available and how importers can calculate it, and they give transparency on how the CBAM rate will be calculated. In doing so, the regulations support the effective introduction of CBAM from 1 January. They help to protect against carbon leakage and they give businesses greater certainty about how the new tax will operate. I commend them to the Committee.

--- Later in debate ---

[James Murray]

I thank all Members for their contributions. As I set out in my opening remarks, the regulations before the Committee give effect to important elements of the CBAM framework, which has already been established by Parliament under the Finance Act 2026. Ultimately, CBAM is about ensuring that the UK’s decarbonisation efforts lead to a real reduction in global emissions. The regulations help to achieve that objective by ensuring that imported goods face a carbon price comparable to that of goods produced in the UK. The regulations support a fair, proportionate and effective CBAM to protect against carbon leakage, and to give industry the confidence to invest in the transition to net zero.

I am grateful to hon. Members for their contributions and will try to address some of their points. As I say, without CBAM the risk is that production and associated emissions will simply move overseas to jurisdictions with lower carbon costs. That carbon leakage, as it is referred to, would be the impact of not having a CBAM, rather than a true reduction in global carbon emissions.

A number of points have been made about the impact on businesses, about the timing of the introduction of the measures and about when the various values will be put in the public domain. I assure the Committee that we have considered carefully how best to support businesses’ preparations for CBAM. We have had to balance the benefits of publishing information at the earliest possible opportunity against the importance of ensuring that the figures published are sufficiently representative to be genuinely useful. For that reason, we have chosen to wait for the latest available data through the UK ETS baseline data reporting exercise, which will provide a robust illustration of future CBAM liabilities. As I say, we will publish that information very shortly.

[John Lamont]

The Minister will be aware of the comments of Paul Tompkins, the NFU deputy president, who has highlighted that adding a CBAM to fertiliser will add significantly to the costs and growing pressures that farm businesses already face. What discussions has the Minister had with the National Farmers’ Union about the issue and specifically about a date when farmers will find out the rate that is to be applied?

[James Murray]

As I said earlier, that happens not only through the formal consultation, but through regular engagement with all sorts of industries affected by the introduction of the CBAM. We want to ensure that we develop the detail of the policy in the best possible way, particularly in relation to fertiliser. I understand that the hon. Gentleman raised that issue, as did a number of others.

A few hon. Members mentioned a figure of £70 per tonne of emissions in fertiliser. I do not recognise that figure at all. I confirm to the Committee that, as I have said, although fertiliser production is emissions-intensive, the effect of the carbon price paid by UK-based fertiliser manufacturers has been extremely low because of the allocation of free allowances to the sector. As a result, we expect initial liabilities to be very modest for imported fertilisers. I will publish illustrative rates very shortly.

Other hon. Members questioned the impact on businesses of the administrative burden of implementing the CBAM. I reassure the Committee that only those that import £50,000-worth or more of CBAM goods in a 12-month period will need to register for the UK CBAM. HMRC estimates that more than 80% of otherwise affected importers will be excluded from the CBAM altogether and that more than 99% of imported emissions will be covered. We believe that that gets the balance right between covering the relevant imports and minimising the administrative burden to those who could be affected.

[Edward Argar (Melton and Syston) (Con)]

I draw the attention of the Financial Secretary to paragraph 9.3 of the explanatory memorandum:

“There will be one-off costs to businesses to familiarise themselves with the requirements, train staff and set up new systems. There will also be a one-off cost associated with the time taken to register for CBAM where required. In addition, there will be ongoing costs to businesses to collate and report to HMRC information about the CBAM goods they have imported”.

What sort of quantum will those costs come out at? What assessment has the Financial Secretary made of what those costs will be for a business?

[James Murray]

I am happy to write to the right hon. Gentleman with any further information that might be available, in addition to what he referred to. However, the wider point, as I said in my opening remarks, is that this is about ensuring we address the risk of production with associated emissions simply moving overseas to jurisdictions with lower costs. The CBAM ensures that we prevent such carbon leakage, so the impact of the policy is to have a genuine reduction in carbon emissions rather than simply moving production overseas. That is the driving principle behind the regulations, the framework in its totality, and the details that we are debating. I thank all right hon. and hon. Members for their contributions and commend the regulations to the Committee.

Question put.