The effective UK carbon price applied by the UK CBAM (also known as the ‘UK CBAM rate’) will be applicable per tonne of embodied emissions attributed to CBAM goods. The UK proposed there would be an individual UK CBAM rate for each sector of goods in scope of the UK CBAM and that these rates will be set by the government at the beginning of each quarter.

In line with the intention that the UK CBAM rate should be comparable to the carbon price faced in the UK by domestic producers, after accounting for adjustments, exemptions or compensation schemes, the UK proposed that the pricing mechanisms that should be reflected in the UK CBAM are:

• The UK ETS,
• Free allocation of allowances under the UK ETS, and
• The Carbon Price Support rate on electricity generated using fossil fuels in Great Britain

The UK proposed referencing the average of the UK ETS auction price over the previous quarter to the quarter in which the goods were imported. Further, it proposed making an adjustment to that referenced UK ETS price to reflect the existence of free allowances available to the domestic industry within that sector over the previous year. This will be known as the ‘free allocation adjustment’.

The government recognises the concerns around the level at which to set the UK CBAM rate, in particular how to accurately reflect the allocation of domestic free allowances. While the UK CBAM rate will be adjusted for free allowances, the government is continuing to consider options as to how to do this and will set out further detail in due course.

Source: GOV.UK

• Why is the UK introducing Carbon Border Adjustment Mechanism (CBAM)?
• Which sectors will a UK CBAM initially apply to?
• Commodity codes within scope of UK CBAM?
• Can product scope of UK CBAM be extended?
• What is Direct emissions and Indirect emissions?