Legislation – Finance Act 2026

CBAM is charged at an amount equal to the sectoral domestic price applicable in respect of the CBAM good multiplied by the number of tonnes of carbon dioxide equivalent emissions embodied in the CBAM good.

(2)

The “sectoral domestic price” applicable in respect of a CBAM good is the price calculated and published by the Treasury for—

(a)

the CBAM sector in which the good falls, and

(b)

the quarter in which the liability to CBAM is incurred in respect of the good.

(3)

The Treasury must calculate and publish the sectoral domestic price for each CBAM sector for each quarter (“quarter Q”) as follows—

Step 1

Calculate the average price per tonne of specified emissions under the UK Emissions Trading Scheme in the quarter preceding quarter Q—
1. (a)
  by reference to auction clearing prices for UK ETS allowances at auctions during the quarter preceding quarter Q, or
2. (b)
  if no allowances were sold at auction during that quarter, as provided in regulations under subsection (6).
Step 2

Reduce that price by a percentage equal to the baseline free allocation percentage for the CBAM sector, as adjusted by a factor specified by regulations under subsection (6)—
1. (a)
  for the CBAM sector for the year in which quarter Q falls, and
2. (b)
  in light of reduction factors applicable in determining, under the UK Emissions Trading Scheme, the allocation in that year of free UK ETS allowances in respect of sub-installations that have a process that serves production of goods falling within the CBAM sector.

(4)

In this section—

“auction” means an auction under the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021 (S.I. 2021/484);

“auction clearing price”, in relation to a UK ETS allowance, has the same meaning as in those Regulations (see regulation 7);

“baseline free allocation percentage” means, in relation to a CBAM sector, the average percentage of sectoral emissions that were covered—

(a)

in the 2019 scheme year, by free EU ETS allowances, and

(b)

in the 2022 and 2023 scheme years, by free UK ETS allowances,

allocated in the scheme years mentioned here in respect of sub-installations that have a process that serves the production of goods falling within the CBAM sector;

“CBAM sector” means the commodity codes set out under a single heading in the Table in Schedule 16 other than the commodity codes that the Table indicates are excepted;

“the ETS Regulations” means the Greenhouse Gas Emissions Trading Scheme Regulations 2012 (S.I. 2012/3038);

“free EU ETS allowance” means an allowance allocated free of charge in accordance with Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emissions allowance trading within the Community and amending Council Directive 96/61/EC;

“free UK ETS allowance” means an allowance allocated free of charge under Part 4A of the UK ETS Order;

“quarter” means a period of 3 months ending at the end of March, June, September or December;

“regulated activity” and “specified emissions” have the meaning given by paragraph 3 of Schedule 2 to the UK ETS Order (or, in relation the 2019 scheme year, given by regulation 3 of the ETS Regulations as it had effect during that year);

“scheme year” has the meaning—

(a)

in relation to the 2019 scheme year, given by regulation 3 of the ETS Regulations;

(b)

in relation to the 2022 and 2023 scheme years, given by article 4 of the UK ETS order;

“sectoral emissions” means, in relation to a CBAM sector, the specified emissions that were emitted in the course of regulated activities carried out at sub-installations in the United Kingdom that have a process that serves the production of goods falling within the CBAM sector;

“sub-installation” means each kind of sub-installation defined by Article 2 of Commission Delegated Regulation (EU) 2019/331 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council (or, in relation to the 2019 scheme year, has the meaning given by regulation 3 of the ETS Regulations as it had effect during that year);

“UK ETS allowance” means an allowance created under the UK ETS Order (see article 18);

“UK ETS Order” means the Greenhouse Gas Emissions Trading Scheme Order 2020 (S.I. 2020/1265).

(5)

In determining the “baseline free allocation percentage” in relation to a CBAM sector, ignore any scheme year in which there were no sectoral emissions.

(6)

The Treasury may by regulations make further provision about the calculation of the sectoral domestic price.

(7)

In this section—

(a)

references to a good falling within a CBAM sector are references to the good falling within one of the commodity codes comprising the sector;

(b)

references to emissions are references to tonnes of carbon dioxide equivalent emissions;

(c)

references to regulated activities carried out to produce goods include regulated activities consisting in the production of heating and cooling consumed during the regulated activities.