UK CBAM for Steel and Aluminium — How to Calculate and Report Embedded CO₂ Emissions

What Is Embedded Carbon and How Is It Calculated

Embedded carbon is the CO₂ and other greenhouse gases (expressed as CO₂ equivalent, tCO₂e) emitted during the production of 1 tonne of steel or aluminium product — from raw material extraction through to the finished product leaving the facility. Under UK CBAM terminology (Finance Act 2026, s. 147) a distinction is made between direct emissions (from fuel combustion in the production process) and indirect emissions (from electricity consumed in production). UK CBAM methodology will be based on an approach analogous to EU CBAM, adapted for UK ETS. HMRC implementing regulations on methodology are being developed during 2026. This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

Direct Emissions (Scope 1) in Steel Production — Electric Arc Furnaces and Blast Furnaces

Direct emissions in steelworks vary significantly depending on the technology used:

• Blast Furnace — Basic Oxygen Furnace (BF-BOF): direct emissions are typically 1.5–2.2 tCO₂e/t of pig iron. The dominant process involves combustion of coke and coal as a reductant. This is the most common technology in Polish steelworks (e.g. ArcelorMittal Poland).
• Electric Arc Furnace (EAF): direct emissions are typically 0.04–0.1 tCO₂e/t of steel. EAF uses scrap steel and electricity — direct emissions are many times lower, but indirect emissions (from electricity) may be significant.

Note: the above figures are typical industry data (World Steel Association) — they are not UK CBAM thresholds. Actual data must come from the facility's emissions reporting systems (e.g. EU ETS registry, GHG reports). quality_flag: needs_human_verify_cbam_benchmarks_steel.

Embedded Emissions in Aluminium — Electrolysis and Electricity

Production of primary aluminium using the Hall-Héroult process (electrolysis of aluminium oxide) is extremely energy-intensive — electricity consumption is typically 13–16 MWh/t of aluminium. Embedded emissions per tonne of primary aluminium depend mainly on the energy mix of the producing country:

• Aluminium from a country with 100% coal energy: typically 15–20 tCO₂e/t (mainly indirect emissions)
• Aluminium from a country with EU energy mix: typically 8–12 tCO₂e/t
• Aluminium from renewable energy (hydro): typically 1–4 tCO₂e/t

For secondary aluminium (from scrap recycling): emissions are typically 0.5–1.5 tCO₂e/t — significantly lower. UK CBAM is intended to reflect this difference. quality_flag: needs_human_verify_cbam_benchmarks_aluminium — figures quoted are typical IAI (International Aluminium Institute) data, not HMRC thresholds.

This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

Indirect Emissions (Scope 2) — How Electricity Enters CBAM Calculations

Under the proposed UK CBAM methodology (analogous to EU CBAM under Commission Implementing Regulation 2023/1773), indirect emissions from electricity are calculated by multiplying electricity consumption by the grid emission factor of the country of production. The Polish electricity grid has one of the higher emission factors in the EU — due to the dominance of coal in the energy mix. This means that Polish EAF steelworks (electric arc furnaces) may have higher indirect emissions than comparable facilities in Scandinavia or France.

Poland's grid emission factor is approximately 700–800 gCO₂/kWh (KOBiZE data — National Centre for Emissions Management). quality_flag: needs_human_verify_cbam_grid_factor — the official factor for UK CBAM will be determined by HMRC in implementing acts.

Proposed UK CBAM Reporting Requirements — What the Importer Must Demonstrate

According to HMRC consultation documents, a UK importer covered by UK CBAM will be required to submit an annual CBAM declaration containing: import volumes (tonnes) for each covered HS code, total embedded emissions (tCO₂e) for imported quantities, and the UK ETS allowance price to be purchased. To correctly calculate emissions, the UK importer will need data from the exporter — the Polish steelworks or aluminium producer. This means the exporter must be ready to supply a carbon declaration (or equivalent) containing: direct and indirect emissions per tonne of product, the calculation method and data source. All requirements are proposed — the final document form will be specified in implementing acts to the UK CBAM legislation. This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

Data the Exporter Must Prepare for the UK Importer — Draft Documentation

Polish steelworks and aluminium producers exporting to the UK should now be collecting the following data (assuming it will be required by HMRC — proposed):

1. Fuel consumption per tonne of product — coke, coal, natural gas, oil — broken down by process
2. Electricity consumption per tonne of product — kWh/t, by process
3. Fuel emission factors — standard GHG Protocol or IPCC values, or measured values
4. Direct and indirect emissions per tonne — expressed in tCO₂e/t
5. Certification or verification by an auditor — HMRC may require verification of data by an accredited GHG auditor
6. EU ETS allowance price paid (if the facility is covered by EU ETS) — for deduction from UK CBAM liability

quality_flag: needs_human_verify_cbam_declaration_format — the format of the CBAM emissions document will be specified in UK CBAM implementing acts; the above is a working list based on HMRC consultations and EU CBAM analogy.

CBAM Default Emission Values — When the Exporter Cannot Supply Data

Both EU CBAM and the proposed UK CBAM incorporate a mechanism of default emission values for importers unable to obtain actual data from the exporter. Default values are higher than the typical emissions of efficient producers — creating an incentive to supply actual data.

Under EU CBAM (analogy): default values for steel are close to global sectoral emission averages, covering the upper quartile of emissions. For primary aluminium the default value is significantly higher than for recycled aluminium. UK CBAM is expected to adopt a similar approach — quality_flag: needs_human_verify_cbam_default_values — specific UK CBAM default values will be determined by HMRC.

Practical conclusion: a Polish steelworks or aluminium producer that supplies the UK importer with actual emission data lower than the default values enables the importer to pay a lower CBAM charge — which is a competitive advantage in price negotiations.

EU ETS and UK CBAM — How to Deduct the Carbon Price Paid

Polish facilities producing steel, aluminium or fertilisers are typically covered by EU ETS (European Union Emissions Trading Scheme) — the European carbon trading system operated by the European Commission. Under EU ETS, facilities purchase CO₂ allowances (EUAs — European Union Allowances) or receive them free of charge as part of the allocation. The price of EUAs paid is evidence that emissions have already been 'priced' at EU level. Finance Act 2026 (ss. 149-150) provides for a 'carbon price relief' mechanism — the ability to deduct the carbon price paid in the country of production from the UK CBAM liability, limiting double taxation. HMRC implementing regulations on the deduction mechanism are being developed during 2026. This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

Documenting the CO₂ Price Paid Under EU ETS — What to Prepare

To allow a UK importer to deduct the EU ETS price from the UK CBAM liability, the exporter must supply documentation confirming: (1) that the facility is covered by EU ETS (EU ETS installation number, identifier in the registry), (2) the quantity of EUAs purchased or surrendered in the reporting year, (3) the EUA price paid — or the average market EUA price for the relevant year.

EU ETS documentation is submitted by the facility to the National EU ETS Administrator (in Poland: KOBiZE — National Centre for Emissions Management, www.kobize.pl, and the Ministry of Climate). Annual emissions reports and verified monitoring plans are available to the facility and may form the basis of CBAM documentation.

quality_flag: needs_human_verify_cbam_euets_credit_format — the format of EU ETS documentation accepted by HMRC will be specified in UK CBAM implementing acts.

EUA Price vs UK ETS Price — Differences and CBAM Implications

UK ETS (UK Emissions Trading Scheme) is a separate system from EU ETS — after Brexit the UK launched its own carbon allowance market. EUA (EU ETS) and UKA (UK ETS) prices may differ — in 2025 the UKA price was lower than the EUA price. The proposed UK CBAM deducts the carbon price paid in the country of production up to the amount corresponding to the UKA price — meaning that if the EUA price is higher than the UKA, the exporter has 'overpaid' the carbon price, but the deduction is capped at the UKA level.

This difference may have significant financial implications for Polish steel and aluminium producers purchasing expensive EUAs. quality_flag: needs_human_verify_cbam_uka_eua_spread — the deduction mechanism and UKA cap is proposed; verify after Finance Act implementing regulations are published.

For comparison — EU CBAM: taxation-customs.ec.europa.eu/CBAM.

How to Prepare a Steelworks or Aluminium Plant for UK CBAM — Action Plan

UK CBAM enters into force on 1 January 2027 (Finance Act 2026) — Polish facilities exporting steel or aluminium to the UK should treat 2026 as a preparation year. Below is a practical action plan — based on the Finance Act 2026 and EU CBAM experience. Note: HMRC implementing regulations (Statutory Instruments) on reporting methodology are being developed during 2026 — the action plan should be adjusted once they are published. This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

Action Plan Q2–Q4 2026 — Priorities for Steel Facilities

April–June 2026:

• Identify HS codes for all products exported to the UK — check which are within the proposed UK CBAM scope
• Download and analyse HMRC consultation documents from gov.uk/government/consultations/uk-carbon-border-adjustment-mechanism
• Check the current status of UK CBAM legislation at legislation.gov.uk and gov.uk/guidance/carbon-border-adjustment-mechanism

July–September 2026:

• Commission an internal GHG emissions audit for product lines exported to the UK — start with EU ETS data (if the facility holds it)
• Identify a partner for emissions data verification (accredited GHG auditor / EU ETS verifier)
• Contact UK importers and discuss CBAM implications for 2027 contracts

October–December 2026:

• Prepare draft embedded carbon documentation for the most important products exported to the UK
• Monitor the enactment of UK CBAM implementing regulations and adjust documentation to final HMRC requirements

The Role of the Customs Broker and Tax Adviser in Preparing for UK CBAM

UK CBAM sits at the intersection of customs law and climate policy — its implementation requires collaboration between production, ESG/environment, logistics departments and the customs broker. The customs broker's role in UK CBAM:

• Monitoring HMRC legislative updates and informing clients
• Helping identify HS codes covered by UK CBAM for exported products
• Coordinating with the UK importer on CBAM documentation requirements
• Handling any customs declarations containing CBAM data once implemented

Easy Clearance monitors UK CBAM developments and is ready to support Polish steel, aluminium and fertiliser exporters in preparing for the new requirements. Contact us if you export to the UK and wish to assess your CBAM risk.

What the current rules say

UK CBAM for steel and aluminium — enacted (Finance Act 2026, Part 5), enters into force 1.01.2027 — will require UK importers to demonstrate embedded carbon in imported products. Polish steelworks and aluminium producers must prepare data on direct (scope 1) and indirect (scope 2, from electricity) emissions per tonne of product. Finance Act 2026 (ss. 149-150) provides for a carbon price relief mechanism — deduction of the carbon price paid under EU ETS. Registration threshold: £50,000 of CBAM goods imported per year. Detailed HMRC implementing regulations (report format, auditor accreditation) are being developed during 2026. This article reflects the legal position as at 2026-04-18. Consult a customs broker before taking action.

FAQ — frequently asked questions

What is embedded carbon and why does it matter for UK CBAM?

Embedded carbon is the CO₂ emitted during the production of 1 tonne of steel or aluminium product. UK CBAM imposes a charge on UK importers proportional to the embedded carbon in imported products. The exporter must supply the importer with emissions data so the importer can calculate and pay the CBAM charge. The methodology for calculating embedded carbon for UK CBAM is being developed by HMRC.

Will Polish steelworks covered by EU ETS have a lower UK CBAM liability?

The UK CBAM mechanism provides that the carbon price paid in the country of production (e.g. under EU ETS) may be deducted from the UK CBAM liability (Finance Act 2026, ss. 149-150). HMRC implementing regulations are being developed during 2026 — verify after publication. EU ETS documentation held by the facility will be a key piece of evidence for the UK importer.

What emissions data must a Polish steelworks prepare for a UK importer?

Proposed data requirements: fuel and electricity consumption per tonne of product, direct (scope 1) and indirect (scope 2) emissions in tCO₂e/t, certification or verification by a GHG auditor, and EU ETS documentation (if the facility is covered). The document format will be specified by HMRC after UK CBAM implementing regulations are published.

When does UK CBAM enter into force?

UK CBAM enters into force on 1 January 2027 — confirmed by Finance Act 2026 (s. 158(1)). The Act is enacted. HMRC is developing implementing regulations (Statutory Instruments) during 2026. Monitor updates at legislation.gov.uk/ukpga/2026/11.

How does UK CBAM differ from EU CBAM for a steel producer?

EU CBAM (Reg. 2023/956) applies to imports into the EU and has been in force since 2023 (transition phase). UK CBAM is a separate mechanism for imports into the UK, planned from 2027. Polish steelworks exporting to the UK are not yet subject to UK CBAM — but preparing EU CBAM documentation will make it easier to meet UK CBAM requirements, as both systems use analogous methodology.

Official sources

• Carbon Border Adjustment Mechanism — gov.uk HMRC — GOV.UK
• UK CBAM — HMRC public consultation — GOV.UK
• EU CBAM — EC TAXUD official page — EC TAXUD
• legislation.gov.uk — developer zone — The National Archives