The UK CBAM rate is a sector-specific charge per tonne of CO2 equivalent, recalculated every quarter from the average UK ETS auction price for the previous quarter, then reduced by a free-allocation adjustment that varies by sector. No rate has been published yet: HMRC and HM Treasury set out the calculation method in draft legislation released for technical consultation on February 10, 2026, but the first quarterly rate will not appear until shortly before the mechanism takes effect on January 1, 2027, with an illustrative example due in autumn 2026.
This guide covers the two-step rate formula, when HMRC will publish the first figures, which five sectors get their own rate, how the UK's price-based approach compares to the EU CBAM certificate price, and how carbon price relief lowers an importer's bill below the headline rate.
What Is the UK CBAM Rate?
The UK CBAM rate is the pounds-per-tonne price HMRC applies to the embedded emissions of an imported CBAM good, used to calculate the tax due at import. It is not one number: the regulations set a separate rate per sector, and every rate resets each quarter.
An importer multiplies the published rate by a good's embedded emissions, then subtracts any carbon price relief, to reach the final charge. Both are defined in one instrument, the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026, made jointly by the Treasury and HMRC, released for technical consultation from February 10 to March 24, 2026. It takes force January 1, 2027, alongside the wider UK CBAM mechanism.
How Is the UK CBAM Rate Calculated?
The UK CBAM rate for a sector equals the average UK ETS auction price for the preceding quarter, minus a percentage equal to the sector's adjusted free-allocation share. The draft regulations define this reduction in two steps within the wider rate formula set by section 146(3) of the Finance Act 2026.
Step 1: The Average UK ETS Price
The starting point is the mean of all UK ETS allowance auction clearing prices during the quarter immediately before the quarter the rate applies to. If no allowances sold at auction that quarter, the fallback is the mean clearing price from the most recent quarter that did clear, mirroring the EU's own CBAM certificate price fallback.
Step 2: The Free-Allocation Adjustment
That average price is then cut by a percentage equal to the sector's baseline free-allocation percentage, adjusted by a reduction factor that increases each year. HMRC borrows this reduction factor directly from Article 16(14) of Commission Delegated Regulation (EU) 2019/331, the EU rule phasing out free allowances for UK ETS scheme years 2027 to 2030. The baseline percentage comes from UK ETS data on average sectoral direct emissions across 2019, 2022, and 2023, so the CBAM rate climbs year over year as free allocation phases out, even when the auction price itself is flat.
To illustrate the mechanics only, with hypothetical figures: an average UK ETS price of GBP 45 per tonne CO2e and a sector free-allocation percentage of 55% would produce a rate of GBP 45 x (1 - 0.55), or GBP 20.25 per tonne. HMRC has not published the actual percentages, so this shows the mechanism, not an expected price. The draft regulations cover only these two steps; combining the rate with a good's embedded emissions to produce the final charge is set out in the Finance Act 2026 itself.
When Will HMRC Publish the First UK CBAM Rates?
No UK CBAM rate has been published as of July 2026. HMRC will calculate and publish quarterly rates only from January 1, 2027, with an illustrative example due in autumn 2026. The first live rate depends on fourth-quarter 2026 UK ETS auction data and cannot be finalized until that quarter closes.
| Milestone | Status | Date |
|---|---|---|
| Draft Calculation of CBAM Rate and Carbon Price Relief Regulations published | Complete | February 10, 2026 |
| First technical consultation closed | Complete | March 24, 2026 |
| Illustrative example CBAM rate | Expected, not yet published | Autumn 2026 |
| Final secondary legislation laid | Expected | Autumn 2026 |
| Q4 2026 UK ETS auction data available (feeds first rate) | Pending | Early January 2027 |
| First live UK CBAM rate takes effect | Scheduled | January 1, 2027 |
Two points follow for importers planning ahead now.
- Budget with a range, not a figure, since any GBP-per-tonne estimate combines a known input (the UK ETS auction price) with an unpublished one (the free-allocation adjustment).
- Track the UK ETS auction price as the closest proxy, much as the EU CBAM certificate price tracks EU ETS auctions.
Which Sectors Get Their Own UK CBAM Rate?
HMRC calculates a separate quarterly rate for each of five sectors: aluminium, cement, fertiliser, hydrogen, and iron and steel. The government's CBAM Policy Summary states that "CBAM will place a carbon price on the emissions embodied in imports of specified goods in the following sectors; aluminium, cement, fertiliser, hydrogen, and iron and steel." Each sector's rate moves independently, since each carries its own baseline free-allocation percentage under Step 2.
Ceramics and glass appeared in earlier design consultations but were not carried into this launch scope; confirm sector coverage against the current Policy Summary before finalizing product mapping.
- Iron and steel: largest import category by volume, priced on direct emissions.
- Aluminium: direct emissions only, as under EU CBAM.
- Cement: direct and indirect (electricity) emissions both feed the rate.
- Fertiliser: urea, ammonia, and nitric acid-based compounds; direct and indirect emissions.
- Hydrogen: varies most sharply by route, since grey and green hydrogen differ widely in embedded emissions.
How Does the UK CBAM Rate Compare to the EU CBAM Certificate Price?
Both rates track a domestic ETS auction price quarterly, but they build in the free-allocation phase-out through opposite mechanisms. The EU keeps its certificate price equal to the EU ETS auction price and instead shrinks the number of certificates an importer surrenders; the UK keeps the emissions figure untouched and shrinks the price itself. The table below sets out the structural differences.
| Feature | UK CBAM rate | EU CBAM certificate price |
|---|---|---|
| Price basis | Average UK ETS auction clearing price, preceding quarter | Average EU ETS auction clearing price (2026); weekly average from 2027 |
| Free-allocation mechanism | Built into the price: cut by the sector's adjusted free-allocation percentage | Applied to volume: the CBAM factor cuts certificates surrendered (2.5% of emissions priced in 2026, rising to 100% by 2034) |
| Reset frequency | Quarterly, from the start of each quarter | Quarterly for 2026; weekly from February 1, 2027 |
| Current figure | None yet; expected before January 1, 2027 | EUR 75.28 per tonne CO2e for Q2 2026 |
| Governing instrument | Finance Act 2026, s.146, and the draft Calculation of CBAM Rate Regulations 2026 | Regulation (EU) 2023/956, Article 22(1a), and Implementing Regulation (EU) 2025/2548 |
For an importer, the practical effect is similar even though the mechanics differ: net carbon cost per tonne rises over time in both systems as free allocation phases out. The EU ETS page explains how EU ETS auctions feed the EU CBAM certificate price, and the EU ETS free allocation phase-out schedule shows the volume-based version of the same trend.
How Does Carbon Price Relief Reduce What Importers Actually Pay?
Carbon price relief lowers an importer's UK CBAM bill below the headline rate when the imported good already carried a genuine carbon price abroad, capped at the CBAM otherwise due. It functions as the UK's equivalent to the deduction EU importers claim under CBAM Article 9, via a different verification chain.
What Counts as a Qualifying Carbon Pricing Scheme?
A qualifying scheme must be a legally mandatory emissions trading scheme, carbon tax, or import-related emissions charge, administered by a city, region, national government, or supra-national body, with its rules, scope, and headline carbon price publicly available. It can price emissions directly (per tonne of CO2 equivalent) or indirectly (a fuel charge converted via a published emissions factor); voluntary participation still qualifies if the scheme meets these conditions.
How Is Carbon Price Relief Calculated?
Relief equals the good's effective carbon price multiplied by its embodied emissions, converted to sterling at HMRC's published quarterly exchange rate for foreign-currency prices. The effective carbon price comes from a five-step installation-level calculation: identify total emissions, isolate the portion priced under the scheme, multiply by the applicable price and sum, divide by total emissions for an average price, then adjust down for any rebates received.
Relief cannot exceed the CBAM liability, so it cannot produce a refund beyond zero, and the underlying data must be independently verified on an HMRC-published form by a verifier accredited under the Global Accreditation Cooperation Multilateral Recognition Arrangement, independent of the installation, importer, and scheme authorities. Importers keep the verification form and supporting records for six years.
Frequently Asked Questions About the UK CBAM Rate
Is the UK CBAM rate the same for every sector?
No. HMRC calculates a separate rate for each of the five covered sectors, because each has its own baseline free-allocation percentage under the UK ETS. Sector rates can move differently even in a quarter where the average UK ETS price is unchanged.
Does HMRC or the Treasury set the UK CBAM rate?
Both. HM Treasury calculates the rate under Finance Act 2026 powers, and HMRC, joint maker of the underlying regulations and administrator of the wider CBAM tax, publishes the resulting quarterly figure importers use.
Can importers estimate their UK CBAM rate before January 2027?
Only approximately. HMRC has not published sector-specific free-allocation percentages or an illustrative rate as of July 2026, so any estimate combines a known input, the UK ETS auction price, with an unpublished one, due in autumn 2026.
Does a higher UK ETS price always mean a higher UK CBAM rate?
Yes: a higher average UK ETS auction price in the preceding quarter produces a higher CBAM rate for that sector and quarter. The free-allocation reduction percentage also rises yearly, so the rate can climb even when the UK ETS price is flat.
Is the UK CBAM rate published the same way as the EU CBAM certificate price?
Not identically, though the rhythm is similar: both update quarterly in 2026 from domestic ETS auction data. The EU price moves to weekly publication from February 1, 2027 under IR (EU) 2025/2548, while the UK rate stays quarterly. See the EU CBAM certificate price tracker for the current EU figure.