Carbon Border Adjustment Mechanism: What UK Manufacturers Need to Know Now

The EU is now pricing carbon into every tonne of steel, cement, and aluminium you export to Europe.

If your manufacturing business exports goods to the European Union, you are already inside the Carbon Border Adjustment Mechanism’s reporting framework. CBAM entered its transitional phase on 1 October 2023. From 2026 onwards, it moves to a financial obligation phase — meaning your EU customers will be required to purchase CBAM certificates to cover the embedded carbon in goods they import from the UK.

The sectors currently in scope are steel, iron, aluminium, cement, fertilisers, hydrogen, and electricity. And here’s the connection most UK manufacturers are missing: your energy costs are not separate from your CBAM exposure. The carbon intensity of the electricity and gas you consume in your manufacturing process is a direct input into the embedded carbon calculation that determines your CBAM liability.

What CBAM actually is

The Carbon Border Adjustment Mechanism is an EU trade policy instrument designed to prevent “carbon leakage” — the process by which industries facing carbon pricing in Europe relocate production to countries with weaker carbon regulations. EU importers must purchase certificates equivalent to the carbon price that would have been paid under the EU ETS if the goods had been produced in the EU. If the exporting country already has a carbon price (as the UK does through its own UK ETS), that price can be offset against the CBAM certificate cost. The EU ETS carbon price has traded in a range of approximately €55–90 per tonne; the UK ETS typically trades at a discount, meaning UK manufacturers face a residual CBAM cost equivalent to the price differential between the two schemes.

Why your energy contract is part of your CBAM strategy

Embedded carbon calculations for CBAM purposes include the carbon content of the energy consumed in manufacturing. A UK manufacturer running on electricity from the standard grid mix will have a higher embedded carbon figure than a manufacturer running on certified renewable electricity. In practical terms: renewable electricity contracts with REGO certification reduce the embedded carbon in your goods and therefore reduce the CBAM certificate requirement for your EU customers. Onsite solar generation provides verifiable low-carbon electricity data for CBAM reporting. Standard grid supply contracts without renewable certification use a default emissions factor of around 0.233 kg CO₂/kWh, which may be significantly higher than a certified renewable source.

For an energy-intensive manufacturer consuming 5,000 MWh per year, the embedded carbon differential between a standard grid contract and a certified renewable contract could be 1,000–1,150 tonnes of CO₂ — multiplied by the EU ETS carbon price, this is potentially €55,000–€100,000 in CBAM certificate cost shifted onto EU customers annually.

What the transitional phase has meant

Between October 2023 and December 2025, CBAM was in a transitional reporting phase. EU importers of in-scope goods were required to report embedded carbon content quarterly, but no financial payments were due. From 1 January 2026, the mechanism entered its definitive phase — EU importers must now purchase CBAM certificates to cover actual embedded carbon. If your EU customers are asking questions about carbon intensity, CBAM reporting, or energy source documentation, this is why.

What manufacturers should be doing now

Calculate your current embedded carbon figure for exported goods — your energy supplier can provide consumption data; the methodology is set out in CBAM regulations. Review your electricity contract for renewable certification — if it doesn’t include REGO certificates, this is a cost-free or minimal-cost addition on most renewals. Assess whether a Power Purchase Agreement makes commercial sense for your scale. Engage with your EU customers about CBAM certificate costs — understanding the financial quantum is essential context for export pricing discussions.

Telnergy works with UK manufacturers across steel processing, aluminium fabrication, and related sectors on energy procurement strategy that addresses both cost and carbon intensity objectives. If CBAM is on your agenda for 2026 and your energy strategy hasn’t been reviewed with this in mind, talk to us.

📱 WhatsApp: 07360 272168 | 📧 hello@telnergy.com | 📞 01202 028888 Telnergy Limited · Independent commercial energy consultancy since 2002 · Ofgem registered TPI · ADR Ref E3561 · CRN 04576876 · Christchurch, Dorset