UK CBAM Is Coming: What the New Carbon Charges Could Mean for Steel and Aluminium Prices
From 1 January 2027, the way certain steel, iron and aluminium products are imported into the UK will change significantly.
The UK Government is introducing its Carbon Border Adjustment Mechanism (CBAM) — a new environmental tax designed to place a carbon price on certain carbon-intensive goods imported into the UK.
For the metals industry, this is more than another piece of environmental legislation. CBAM has the potential to influence import costs, sourcing decisions, supplier competitiveness and ultimately the price UK buyers pay for steel and aluminium.
With less than six months remaining until implementation, businesses throughout the metals supply chain should be preparing now.
What is CBAM?
The Carbon Border Adjustment Mechanism is designed to address something known as carbon leakage.
UK manufacturers operating in energy-intensive industries can face carbon costs through the UK Emissions Trading Scheme (UK ETS). Overseas manufacturers may operate in countries where carbon emissions are taxed at a much lower level — or not priced at all.
This can potentially give imported material a cost advantage over material manufactured in the UK.
CBAM attempts to level that playing field.
From 1 January 2027, qualifying imports into the UK will effectively face a carbon charge designed to reflect the carbon price that an equivalent UK producer would have faced.
The initial UK CBAM will cover five sectors:
Iron and steel
Aluminium
Cement
Fertiliser
Hydrogen
For Metal Connects users, iron, steel and aluminium will clearly be the areas of greatest interest.
Which steel and aluminium products will be affected?
CBAM does not simply apply to every product described as steel or aluminium.
HMRC has published lists of commodity codes identifying products that fall within the scheme. Businesses will therefore need to understand the commodity codes used for their imports rather than relying purely on product descriptions.
The scope covers a wide range of iron, steel and aluminium products, although there are exclusions. For example, certain aluminium and iron and steel scrap commodity codes will not initially fall within CBAM.
For distributors, stockholders and importers dealing in products such as pipe, tube, plate, sheet, sections, bars, fittings, flanges and other manufactured steel products, checking the relevant commodity code is going to become increasingly important.
CBAM could therefore introduce another consideration when comparing apparently identical quotations from different international sources.
How will the CBAM charge be calculated?
This is where CBAM becomes particularly important for purchasing departments and importers.
In simplified terms:
CBAM Charge = Embodied Carbon Emissions × UK CBAM Rate
Where eligible, an importer may then claim Carbon Price Relief where a qualifying carbon price has already been paid in the country of manufacture.
The eventual liability is therefore broadly:
CBAM Liability = CBAM Charge – Eligible Carbon Price Relief
The Government has confirmed that CBAM rates will be linked to the effective carbon price faced by UK manufacturers under the UK Emissions Trading Scheme, with adjustments made for free allowances available to domestic producers.
Rates will be calculated separately by sector and published quarterly from 1 January 2027. An illustrative CBAM rate is expected to be published during autumn 2026.
This means there will not necessarily be one permanent CBAM surcharge that importers can simply add to every tonne of steel.
The charge can vary according to the emissions associated with the material, the sector rate applicable at the time of import and any recognised carbon price already paid overseas.
Actual emissions versus default emissions
One of the most important elements of CBAM will be knowing the carbon emissions embodied within imported material.
Importers will be able to use either:
Independently verified actual emissions data
or
Government-defined default emissions values.
This could create an important commercial distinction between overseas mills.
Manufacturers capable of providing reliable, independently verified evidence demonstrating lower-carbon production could potentially become more competitive than manufacturers whose customers have to rely on default emissions figures.
For buyers, therefore, the traditional purchasing questions of:
Price? Availability? Lead time? Origin? Certification?
could increasingly be joined by another:
What is the embodied carbon?
Importantly, the Government has confirmed that when UK CBAM launches in 2027, the charge will initially be based on direct emissions embodied within the imported goods.
Indirect emissions have been excluded from the initial implementation.
The £50,000 registration threshold
CBAM will not only affect the UK's largest steel importers.
Businesses will need to register where the total value of qualifying CBAM goods they import exceeds, or is expected to exceed, the £50,000 registration threshold.
HMRC has confirmed that businesses must consider qualifying imports across the relevant period when determining whether they have exceeded the threshold.
Interestingly, the CBAM registration service is expected to open by 1 January 2028, despite CBAM charges applying to qualifying imports from 1 January 2027.
Businesses that become liable before registration opens will therefore need to retain appropriate records of CBAM goods imported during 2027 so that the necessary reporting can subsequently be completed.
That makes preparation during 2026 particularly important.
Could CBAM increase UK steel prices?
Potentially, yes.
CBAM is primarily an environmental policy rather than a conventional import tariff, but commercially the effect can still be an increase in the landed cost of some imported products.
The largest effect is likely to be felt where material originates from carbon-intensive production routes in jurisdictions where little or no qualifying carbon price has already been paid.
Importers facing additional CBAM liability are unlikely to absorb those costs indefinitely.
They could instead be reflected in:
higher landed import prices;
increased stockholder replacement costs;
changing mill sourcing strategies;
different premiums between origins;
greater demand for lower-carbon steel;
and potentially higher prices further down the supply chain.
The impact will not necessarily be equal across every origin or producer.
And that may be one of the most significant consequences of CBAM.
Historically, two mills producing material to the same specification could largely compete on price, quality, delivery and commercial terms.
Under CBAM, their respective carbon footprints could increasingly become part of the price comparison.
Low-carbon, manufactured steel could gain a commercial advantage
CBAM could accelerate a change that is already taking place within global steelmaking.
Electric Arc Furnace production, greater use of recycled scrap, renewable electricity, hydrogen-based steelmaking and other lower-carbon manufacturing methods are receiving significant investment.
Once carbon carries an identifiable financial cost at the UK border, reducing emissions is no longer solely an ESG consideration.
It potentially becomes a competitive pricing advantage.
A tonne of steel with significantly lower verified embodied emissions could carry a lower CBAM liability than equivalent high-emission material.
This could gradually alter the economics of global metals sourcing.
What about European material?
The EU operates its own Carbon Border Adjustment Mechanism, with its definitive regime beginning in 2026.
The UK's scheme is separate.
However, the UK system allows Carbon Price Relief where the embodied emissions of imported goods have already been subject to a qualifying carbon pricing scheme, provided the required conditions and independent verification requirements are met.
This is intended to prevent an importer effectively paying the full carbon price twice.
The documentation surrounding that carbon price will consequently become increasingly important within international metals transactions.
The hidden challenge: data
The financial charge may receive most of the attention, but one of the biggest practical challenges for metals businesses could actually be information.
Importers may increasingly need data relating to:
commodity codes;
country of origin;
producing mill;
installation or manufacturing facility;
product weight;
embodied emissions;
emissions verification;
carbon pricing already incurred;
and supporting documentation.
This means purchasing departments will increasingly depend upon manufacturers and overseas suppliers being able to provide accurate carbon information.
Those unable to provide it could become less attractive supply-chain partners.
CBAM could therefore accelerate another important trend within metals distribution:
greater transparency and digitalisation of material data throughout the supply chain.
What should metals businesses do now?
Businesses importing steel or aluminium should not wait until January 2027.
The first step should be to identify which imported products fall within the published CBAM commodity codes and establish the value of those imports.
From there, companies should begin speaking with overseas suppliers and manufacturers about emissions information.
Questions worth asking now include:
Can the mill provide product emissions data?
Has that data been independently verified?
What carbon pricing scheme applies within the country of production?
Can the supplier provide the documentation required to support Carbon Price Relief?
Could an alternative mill or manufacturing route offer a lower CBAM exposure?
Companies should also ensure that their systems are capable of recording the necessary information against imported material.
For some businesses, CBAM could require changes not only to purchasing procedures but also to ERP systems, customs processes and supplier onboarding.
CBAM could change how steel is bought
It would be easy to view CBAM simply as another tax.
Its wider implications could be considerably more significant.
For decades, metals purchasing has largely revolved around specification, origin, price and availability.
CBAM begins to attach a direct commercial value to something that historically has rarely appeared on a steel quotation:
the carbon emitted producing the material.
That could change which countries are competitive, which mills win orders and how purchasing departments assess overseas suppliers.
It could also create opportunities for manufacturers able to demonstrate lower-carbon production and for distributors capable of providing customers with better transparency regarding material origin and emissions.
The UK metals industry therefore has a little under six months to prepare.
CBAM takes effect on 1 January 2027 — but its influence on purchasing decisions could begin considerably sooner.
Metal Connects will continue to monitor developments surrounding UK CBAM, including the publication of the first indicative carbon rates, final emissions guidance and their potential effect on UK steel and aluminium pricing.
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