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16 Eastcheap, 5th and 6th floor
EC3M 1BD
London
United Kingdom

+44 (0) 20 3880 0575

hello@privalgo.co.uk

Office Hours
Monday - Friday
8:00am - 5:30pm

Businesses involved in importing and exporting goods need to stay ahead of regulatory changes to avoid any negative impact on their operations.

One such regulation soon to be introduced is the Carbon Border Adjustment Mechanism (CBAM).

Understanding the implications of CBAM is crucial for importers currently navigating this evolving landscape.

This article sets out to provide your business with the knowledge and tools you need to thrive in the global marketplace.

What is CBAM regulation?

Proposed by the European Union (EU) and the United Kingdom (UK) CBAM aims to level the playing field for UK and EU-based industries by placing a carbon price on imported goods.

Before the CBAM, the UK and EU followed an Emissions Trading Scheme (ETS) where domestic businesses paid a carbon price on the goods they produced in the EU and UK. The UK set up its own ETS after leaving the EU.

However, both the UK and EU were concerned about the concept of carbon leakage undermining the UK and EU ETSs. This is where businesses relocate production to countries with less stringent regulations, therefore avoiding charges.

The UK and EU CBAMs ensure that imported products are subject to similar environmental standards as those produced within the EU.

By factoring in the cost of carbon emissions, CBAM incentivises global businesses to adopt more sustainable practices and mitigates the risk of carbon leakage.

How does CBAM impact UK importers?

CBAM will target specific sectors impacting UK businesses for the goods they import as well as any goods you they manufacture domestically.

Essentially, your business may have to pay tax on the carbon used to manufacture your imports.

The UK CBAM will work as a levy like other import taxes. The UK CBAM rate, or price you’ll pay, will be presented by the UK government every quarter.

Understanding and complying with CBAM requirements is essential to avoid potential penalties and disruptions to your supply chain.

Read: Importing from China to the UK: the essential guide for wholesalers in 2024

Who is affected by CBAM?

While the core explanation of CBAM’s purpose is well-established, let’s delve deeper into how it might specifically impact your business.

Targeted sectors: The initial phase of CBAM will focus on specific sectors with high carbon footprints, including aluminium, cement, fertilisers, iron and steel, and glass. Your business will be affected by CBAM if you import goods in these categories.

Implementation: Unlike the EU CBAM, which will be introduced via a transitional phase starting in 2026, the UK CBAM will come into full enforcement with a carbon price levy in 2027. This means you’ll have to be prepared to start paying the whole tax as soon as the CBAM comes into effect.

Compliance requirements: In preparation for CBAM implementation, you’ll need to establish systems for collecting data on the embedded carbon emissions of your imports. This will likely involve working with suppliers to acquire necessary information.

Preparing for CBAM: Action steps for UK importers

Now that we’ve discussed the starting points for understanding CBAM, here’s how your business can take action today:

  • Identify applicable products: Review your product portfolio and pinpoint items falling under the targeted sectors for CBAM.
  • Engage with suppliers: Initiate conversations with your suppliers about CBAM. Discuss their plans for collecting carbon footprint data and explore collaborative strategies for compliance.
  • Seek professional guidance: Consider consulting with customs brokers or international trade specialists familiar with CBAM regulations. They can advise on compliance procedures and potential cost implications.

Read: Shipping container industry: Top 4 risk management practices

Managing costs following CBAM regulation introduction

As we’ve mentioned throughout this article, CBAM will act as an additional cost on your imports. It’s therefore essential your business investigates ways to save money and manage costs effectively to offset the CBAM tax.

At Privalgo, we help importers save money and bring certainty to their costs through faster global payments and smarter currency risk management.

We do this by building currency hedging strategies tailored to your business’ specific needs. Within this strategy could be products such as forward contracts and market orders.

Forward contracts help you lock in a favourable exchange rate to be paid at a later date, regardless of where the currency markets move. This way, you’ll know exactly how much you’ll be paying for a certain currency, giving you confidence in your costs.

Products like market orders help you capitalise on opportunities when currency values change. If your business makes payments in different currencies, you’ll know that the exchange rate between two currencies is constantly changing.

Market orders enable you to set a target exchange rate. If the rate you’ve set is reached, we’ll execute a transaction automatically.

This way, you don’t have to monitor the markets and look for the best time to exchange. We do it all for you, helping you achieve maximum value on your FX while saving you time.

With the additional CBAM charges on the horizon, use our hedging strategies to take control of your costs and maximise your profits when you make international payments.

Learn how you can start saving money with one of our import/export specialists by filling out the form below.

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Read: What are tariffs and restrictions in global trade?

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