UK CBAM 2027: What SME Exporters Need to Know

The UK Carbon Border Adjustment Mechanism (CBAM) was legislated in the Finance Act 2026 and becomes operational on 1 January 2027. If your business imports aluminium, cement, fertilisers, hydrogen, iron, or steel into the UK, you need to register and report embedded emissions. The EU’s version is already live. Both regimes require data that many SMEs have never had to produce.

What CBAM is and why it exists

CBAM is a carbon price on imports. It works by requiring importers to purchase certificates reflecting the carbon embedded in the goods they bring into the country. The purpose: to prevent “carbon leakage” — where manufacturers relocate to countries with weaker carbon pricing to avoid costs, then export the same goods back.

The EU CBAM definitive regime went live on 1 January 2026, covering the same product categories. UK exporters selling into the EU are already affected — they must supply verified embedded emissions data to their EU importers, or those importers face conservative default values (which are more expensive).

The UK CBAM mirrors this approach. From January 2027, UK importers of covered goods must report the embedded emissions of those imports and purchase CBAM certificates at the prevailing UK carbon price.

Who needs to act: the £50,000 threshold

Not every business importing covered goods will need to register. The UK scheme includes an SME-friendly registration threshold: you only need to register if your CBAM-liable imports exceed £50,000 over a rolling 12-month period. This was raised from the originally proposed £10,000 threshold following consultation feedback.

If your business imports less than £50,000 worth of covered goods annually, you are currently exempt from registration. But two caveats apply:

1. The threshold is based on import value, not volume. Steel prices fluctuate. A business importing a relatively modest volume of speciality steel could cross the threshold in a high-price year.

2. Data requests flow upstream regardless. Even if you’re below the threshold as an importer, if you’re a UK manufacturer exporting covered goods to an EU importer, that importer needs your embedded emissions data to comply with the EU CBAM. You’re affected as a data provider, not as a registrant.

What “embedded emissions” means in practice

Embedded emissions are the total greenhouse gas emissions generated during the production of a good — from raw material extraction through to the finished product leaving the factory gate. For CBAM purposes, this includes:

Direct emissions: Fuel combustion and process emissions at the production site (comparable to Scope 1).

Indirect emissions: Emissions from purchased electricity used in production (comparable to Scope 2).

For SME manufacturers, this means tracking your site-level energy consumption and production processes with enough specificity to allocate emissions to individual product lines or batches. That’s a more granular requirement than standard corporate carbon reporting.

The quarterly reporting cycle

UK CBAM requires quarterly reporting, not annual. Importers must submit returns covering the embedded emissions of goods imported in each quarter, with the first return due in spring 2027 (covering Q1 2027 imports).

For SME exporters supplying data to importers, this means responding to data requests on a quarterly cycle — not once a year. If your largest customer is an EU importer who’s been requesting annual data, expect that to shift to quarterly under the UK scheme as well.

What to do now: four steps for SME exporters

Step 1: Check your product classification. CBAM covers specific CN (Combined Nomenclature) codes for aluminium, cement, fertilisers, hydrogen, iron, and steel. If you manufacture or import goods in these categories, you’re in scope. If you’re unsure, check HMRC’s CBAM guidance or ask your trade compliance team.

Step 2: Map your production emissions. For each covered product, you need to know the direct emissions (fuel and process) and indirect emissions (electricity) associated with production. Start with your energy bills and production records for the most recent 12 months.

Step 3: Talk to your EU customers now. If you export covered goods to EU importers, they’ve been under CBAM reporting obligations since October 2023 (transitional phase) and purchasing certificates since January 2026. They need your embedded emissions data. If you haven’t provided it, they’re using conservative default values — which cost them more and give them a reason to find a supplier who can provide actuals.

Step 4: Establish a data collection rhythm. Quarterly reporting requires quarterly data. Set up a process to capture energy consumption and production volumes at least quarterly, even if your first UK CBAM return isn’t due until mid-2027.

How the UK and EU schemes interact

UK manufacturers exporting to the EU face EU CBAM requirements on the import side. EU manufacturers exporting to the UK will face UK CBAM requirements from January 2027. For businesses trading in both directions, this means maintaining emissions data that satisfies both regimes.

The UK government has indicated it will seek to align methodology with the EU where practical, but the schemes are legally separate. Embedded emissions calculations under EU CBAM follow the EU Implementing Regulation; UK CBAM will follow HMRC’s own guidance, expected to be finalised in late 2026.

How CYF helps

Compare Your Footprint is built around UK DEFRA/DESNZ conversion factors and UK reporting frameworks. For manufacturers, CYF can serve as the emissions data backbone that captures site-level energy consumption and calculates the Scope 1 and 2 figures needed for CBAM embedded emissions reporting. The platform’s structured data collection means your quarterly figures are consistent and auditable — rather than ad hoc calculations compiled under deadline pressure.

CYF’s benchmark dataset also allows you to compare your production emissions against sector averages, giving you and your customers context on whether your embedded emissions are competitive or above the norm.

Methodology guidance from Alice Roberts, Head of Methodology at Compare Your Footprint.

Book a demo to see how CYF handles embedded emissions data for CBAM-affected exporters.