The Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026

John Lamont Excerpts

Monday 12th October 2026 General Committees

[James Murray]

The mechanism of removing free allowances is part of the transition to the new system. Under the new system, the CBAM price will ensure that those industries within the UK that are investing in decarbonisation are not disadvantaged by industries moving overseas. If the industries move overseas to areas that have a higher carbon intensity, they could be at an advantage relative to the industries here in the UK. It is about levelling the playing field for businesses operating in the UK.

[John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)]

The Minister mentioned that fertiliser will be affected by the CBAM. Farmers are rightly concerned about how this will impact them. Some farming organisations have indicated that this might increase the price of fertiliser by up to £70 a tonne, which will obviously have a big impact on the price of food. When will the rate for fertiliser be set, and when will it be announced?

[James Murray]

Although fertiliser production is emissions-intensive, the effective carbon price paid by UK-based fertiliser manufacturers has been extremely low because of the allocation of free allowances to that sector. As a result, we expect initial liabilities to be very modest for imported fertilisers. To support transparency and to help businesses to prepare, the Government will publish illustrative CBAM rates very shortly, which will provide a clear indication of the likely scale of the charge that may apply to fertiliser imports when the CBAM comes into force.

I should emphasise that CBAM is not a protectionist measure, nor is it designed to raise revenue. Its purpose is to ensure that imported goods face carbon costs comparable to those that our domestic industry faces, as I set out in response to my hon. Friend the Member for Middlesbrough South and East Cleveland. It is therefore only right that, where the emissions embodied in an imported good have already been subject to qualifying a carbon price overseas, those costs are recognised and relief is made available. Importers of goods produced under schemes that align with the criteria, such as the EU emissions trading scheme or the Canadian federal output-based pricing system, should not pay twice for the same emissions. Those are just two examples; a list of all the national schemes that the Treasury recognises as qualifying carbon pricing schemes has been published on gov.uk.

The regulations establish the framework for claiming this relief. They define the characteristics of a qualifying carbon pricing scheme, set out how an effective carbon price should be determined and specify the evidence and independent verification required to support a claim for carbon price relief.

The Government remain committed to a full consultation throughout the development of CBAM, and that has included a technical consultation of the regulations before the Committee today. A small number of technical and clarificatory changes were made following that consultation, as is set out in paragraph 7.3 of the explanatory memorandum. Those changes improved the operation and clarity of the regulations without altering the policy intent. Engagement has not been limited to formal consultation. The Treasury and HM Revenue and Customs continue to work with domestic businesses, trade bodies, verifiers, international partners and other interested stakeholders and remain committed to ongoing engagement as CBAM comes into force on 1 January 2027 and beyond.

In summary, the regulations implement important aspects of the CBAM framework already approved by Parliament in the Finance Act 2026. They provide clarity on carbon price relief, including when it is available and how importers can calculate it, and they give transparency on how the CBAM rate will be calculated. In doing so, the regulations support the effective introduction of CBAM from 1 January. They help to protect against carbon leakage and they give businesses greater certainty about how the new tax will operate. I commend them to the Committee.

[John Cooper (Dumfries and Galloway) (Con)]

It is a pleasure to serve under your chairmanship, Mr Stringer. His Majesty’s loyal Opposition will oppose this legislation, but not because of the detail we have heard today, complex though it is, and which has been a long time coming, emerging inch by painful inch. Rather, we oppose this legislation in the round. The Conservatives’ intention is to scrap the carbon border adjustment mechanism as well as the emissions trading scheme. Committing to fully scrapping the carbon tax regime, the Leader of the Opposition said that it was “madness” to pursue the goal of preserving the environment by

“killing British industry and fatally weakening our national resilience.”

We are not alone. Many industry voices agree. Steel is one of the sectors most affected by CBAM. Frank Aaskov, the director of climate change policy at UK Steel, has said:

“The UK Government is knowingly driving towards deindustrialisation with its carbon border policy, while ignoring repeated, evidence-based warnings from industry.

As currently structured, the policy will favour overseas competitors over domestic steel producers, undermining investment decisions being taken now on decarbonisation.”

The Government’s ruinously expensive steel strategy—apparently keeping blast furnaces alight with bundles of taxpayers’ £20 notes—is in meltdown. CBAM is another hammer blow for this foundational industry, as with cement, chemicals and aluminium. Reindustrialisation is simply not possible while this Government inflict punitive energy costs on business and pursue a net zero agenda that is more concerned with green dogma than real-world practicality.

There is much talk from Government about food security being national security, but our pivotal agricultural industry is alarmed by CBAM and, as we have heard, by its impact on fertiliser. The umbrella body, the Agricultural Industries Confederation, warns that the fertiliser market operates across highly integrated European supply chains. The current lack of clarity risks creating unnecessary administrative burdens, pricing uncertainty and potential distortions between UK, EU and third-country suppliers. Industry estimates show that CBAM could add between £70 and £100 a tonne to the cost of fertiliser. That is a huge additional burden on an industry in which margins are already tight.

[John Lamont]

The shadow Minister’s excellent speech is making it very clear why farmers and other part of industry are concerned about the regulations. In response to my earlier intervention, the Minister said that he would be telling farmers the rates “very shortly”. Frankly, that is not good enough. Does the shadow Minister agree that farmers need that certainty now? They might not be able to get a definitive figure, but they need to know the date by which the rate will be announced.

[John Cooper]

My hon. Friend makes an excellent point. All businesses need certainty, and farmers are no different. They need to buy things in advance, so they need to know how much things will cost. It is about going back to the foundations. The additional cost of fertiliser is likely to link directly to higher food prices, which will affect all our constituents in a cost of living crisis.

What will be the impact of the measure on businesses? The explanatory memorandum to the regulations says that CBAM

“will have a significant impact on...10,000 businesses importing CBAM goods into the UK.”

As with every regulation, small businesses will face higher administrative costs relative to their turnover. However, the Government have not published a new impact assessment alongside the instrument. Could the Minister tell us why not? How can the Government claim that the tax information and impact note from November 2025 remains accurate, when we all know how much more precarious the situation for business is now than it was a year ago? Across industry and businesses big and small, warning lights are flashing on dashboards.

CBAM is a wrong-headed attempt at a solution to the failures of the carbon tax. The solution cannot be to add yet more burdens on Britain’s businesses to try to balance out the damage already done. The solution is to tackle the problem at source: to axe the carbon tax entirely, and the emissions trading scheme and CBAM with it, and to end the deindustrialisation of our country. This is the time to drive industry forward, not to hamstring it with additional costs that are deleterious and damaging to its very survival. The Government should think again.

--- Later in debate ---

[Pippa Heylings (South Cambridgeshire) (LD)]

We Liberal Democrats support the carbon border adjustment mechanism. We have long supported action to support businesses, create incentives to prevent carbon leakage and ensure that the transition to net zero is both environmentally effective and economically fair. That is particularly important for farmers and agriculture, especially after the summer of extreme heat that we have just seen. Over the past five years, farmers have seen the worst three harvests on record, so tackling climate change is at the top of their mind. They are acutely aware; they are long-term planners and they know that we have to do what we can.

That point brings me to our two concerns about the Government’s decision to introduce the regulations in this way and at this moment. First, we are concerned by the inclusion of fertilisers without confirmation of the rate. That risks imposing substantial additional costs on a sector that is already under immense cumulative financial pressure. In the context of prolonged conflict in the middle east and the closure of the strait of Hormuz, as well as the climate change pressures that I have mentioned, farmers are facing rising costs, volatile incomes and significant uncertainty.

[John Lamont]

The hon. Lady is right to identify the big challenges that farmers are facing. The last thing they need is up to £70 or £80 a tonne being added to the cost of fertiliser. Surely the Liberal Democrats should oppose the regulations until we get some clarity from the Government as to what the financial impact will be.

[Pippa Heylings]

That is exactly the point that I am raising, which is about uncertainty. The National Farmers’ Union has estimated exactly that cost, which will ultimately be borne by British farmers. At a time when they face such volatility and uncertainty, we should be strengthening our food security, not undermining it. We would like the Government first to tell farmers what that rate would be.

--- Later in debate ---

[James Murray]

I thank all Members for their contributions. As I set out in my opening remarks, the regulations before the Committee give effect to important elements of the CBAM framework, which has already been established by Parliament under the Finance Act 2026. Ultimately, CBAM is about ensuring that the UK’s decarbonisation efforts lead to a real reduction in global emissions. The regulations help to achieve that objective by ensuring that imported goods face a carbon price comparable to that of goods produced in the UK. The regulations support a fair, proportionate and effective CBAM to protect against carbon leakage, and to give industry the confidence to invest in the transition to net zero.

I am grateful to hon. Members for their contributions and will try to address some of their points. As I say, without CBAM the risk is that production and associated emissions will simply move overseas to jurisdictions with lower carbon costs. That carbon leakage, as it is referred to, would be the impact of not having a CBAM, rather than a true reduction in global carbon emissions.

A number of points have been made about the impact on businesses, about the timing of the introduction of the measures and about when the various values will be put in the public domain. I assure the Committee that we have considered carefully how best to support businesses’ preparations for CBAM. We have had to balance the benefits of publishing information at the earliest possible opportunity against the importance of ensuring that the figures published are sufficiently representative to be genuinely useful. For that reason, we have chosen to wait for the latest available data through the UK ETS baseline data reporting exercise, which will provide a robust illustration of future CBAM liabilities. As I say, we will publish that information very shortly.

[John Lamont]

The Minister will be aware of the comments of Paul Tompkins, the NFU deputy president, who has highlighted that adding a CBAM to fertiliser will add significantly to the costs and growing pressures that farm businesses already face. What discussions has the Minister had with the National Farmers’ Union about the issue and specifically about a date when farmers will find out the rate that is to be applied?

[James Murray]

As I said earlier, that happens not only through the formal consultation, but through regular engagement with all sorts of industries affected by the introduction of the CBAM. We want to ensure that we develop the detail of the policy in the best possible way, particularly in relation to fertiliser. I understand that the hon. Gentleman raised that issue, as did a number of others.

A few hon. Members mentioned a figure of £70 per tonne of emissions in fertiliser. I do not recognise that figure at all. I confirm to the Committee that, as I have said, although fertiliser production is emissions-intensive, the effect of the carbon price paid by UK-based fertiliser manufacturers has been extremely low because of the allocation of free allowances to the sector. As a result, we expect initial liabilities to be very modest for imported fertilisers. I will publish illustrative rates very shortly.

Other hon. Members questioned the impact on businesses of the administrative burden of implementing the CBAM. I reassure the Committee that only those that import £50,000-worth or more of CBAM goods in a 12-month period will need to register for the UK CBAM. HMRC estimates that more than 80% of otherwise affected importers will be excluded from the CBAM altogether and that more than 99% of imported emissions will be covered. We believe that that gets the balance right between covering the relevant imports and minimising the administrative burden to those who could be affected.