Carbon borders and competitiveness: what hard-to-abate sectors need to know about EU and UK market access

What CBAM means in practice 

For companies in hard-to-abate sectors (cement, iron & steel, aluminium, fertilisers, hydrogen and electricity), the carbon cost is calculated on the basis of embedded emissions (the greenhouse gases released during production): the lower the emissions, the lower the cost.  

EU and UK importers bear the legal compliance obligation, but the commercial pressure lands on the producers supplying them: the embedded emissions in your products directly determine the compliance cost your buyer faces under EU and UK CBAM. In a nutshell, you can unlock a clear competitive advantage for yourself and your clients by lowering emissions and the CBAM costs that come with them. 

For the EU, the CBAM came into force in January 2026; the UK equivalent comes into force in January 2027. Whilst the two regimes have similar objectives, they differ slightly in both structure and scope as table 1 below shows; formal negotiations to link the two systems are underway but at an early stage so companies supplying both markets should plan to manage them separately for now. It should be noted that: 

1. For some sectors – regardless of volume - every importer is impacted; and  
2. For other sectors, a threshold applies, so companies with meaningful trade volumes should not assume they fall below it.  

Table 1: Summary of EU CBAM and UK CBAM 

How this applies to your business will depend on your sector, supply chain and country of origin, and the financial exposure will reflect both the carbon intensity of your production and carbon costs that fluctuate over time. The details matter, and this is where specialist advice pays off. 

What companies should do 

CBAM makes the carbon intensity of your production a direct cost variable. The lower your embedded emissions, the lower the compliance cost your EU or UK buyer faces and the more competitive your products become relative to higher-carbon alternatives. 

The most accessible first step is getting your emissions data right. Default values are set at average emissions intensities for each country and product, with a built-in markup, specifically designed to incentivise importers to provide verified actual data instead. For facilities operating below that carbon intensity, verified actual figures will already reduce a buyer's CBAM liability directly. 

For most companies in these sectors (cement, iron & steel, aluminium, fertilisers, hydrogen and electricity), that exercise will also reveal further opportunities to reduce embedded emissions. For many, energy efficiency, fuel switching and electrification offer meaningful near-term reductions. But for some sectors, a significant share of emissions arises from the production process itself – in cement, for example, process emissions account for around 60–65% of total CO₂ and cannot be fully eliminated through efficiency measures alone. Addressing these residual emissions requires capturing CO₂ at source: carbon capture and storage (CCS) is an increasingly popular route, permanently storing CO₂ underground rather than releasing it. Under EU CBAM, CCS directly reduces verified embedded emissions, provided storage is permanent and claims are independently verifiable. [1]  

Commercial-scale CCS projects are becoming more and more complex – due to cost efficiency through economies of scale, hubs and clusters is an increasingly popular approach to decarbonise industries by sharing common transport and storage infrastructure for captured CO₂, pooling multiple emission sources into a cluster served by a central hub. This approach makes largescale CCS more viable for heavy industries. An integrated hub and cluster CCS value chain is highly complex, with each entity within that chain having its own individual risk profile in addition to the associated cross-chain risks. New and innovative insurance approaches will therefore be essential to the success of these projects. Howden and Energex’ recent paper Closing the risk gap explores cross-CCS value chain risk management strategies and insurance solutions. 

[1] Note that draft EU rules include the recognition of international credits as a carbon cost paid outside the EU, to be deducted from CBAM fees. No final decision has been reached on this point as of May 2026.