The UK’s Carbon Border Adjustment Mechanism (CBAM) is due to be introduced on 1 January 2027. But even before the new regime comes into force, the Government is consulting on a potentially significant subsequent expansion to refinery products such as petrol, diesel, jet fuel and kerosene. Let’s examine the implications and how stakeholders can participate.
The consultation — published on 28 October and running to 20 January 2027 — widens consideration for the issue into every transport sector, logistics, manufacturing and many other fields. The move aligns with recent policies and the mood music around procurement sovereignty, with the policy looking to level the playing field between domestic producers and importers in terms of carbon pricing.
However, it could mean further price rises for those importing refinery goods, particularly those reporting carbon intensive means of production and distribution. This could have significant consequences for commercial fleets, particularly haulage, airlines and shipping.
Why is this happening?
The basic answer is carbon leakage. CBAM is designed to equalise potential differences between the carbon price applied to UK production and those faced by overseas producers. This becomes particularly important when the UK’s reliance on imported refinery products is considered. With diesel, for example, the UK now imports a substantial proportion of annual demand, while domestic refinery production has declined considerably since the beginning of the century.
This is particularly important when the levels of UK importation of refinery products are assessed. With diesel, for example, the UK imports 54% of annual supplies, compared to just 16% at the turn of the century. Net imports have risen 40% since 2019 and UK refinery production for 2025 is 44% lower than the figure for the year 2000.
The issue is about more than carbon accounting. The consultation appears to be part of the government’s desire for increased procurement sovereignty and security of supply with regard to fossil fuels.
What might the pricing formula be?
UK CBAM will come into force on 1 January for aluminium, cement, fertilisers, hydrogen, and iron and steel for companies importing more than £50,000 of these commodities over a 12-month period. The pricing formula emulates the UK Emissions Trading System measured in tonnes of CO₂e using either verified actual emissions data from the overseas supplier or default values set by the UK government.
Whether this arguably laudable levy will be swallowed by firms already struggling with thin margins, or wholly / partly passed onto the end consumer is a moot question, but it should be considered that 60% of UK transport businesses are ‘very concerned’ about fuel price rises (ONS Business Insights & Conditions Survey). Furthermore, diesel is reached record prices in September and the Road Haulage Association recently commented that fleet operators are paying more than £350 per vehicle per week mainly due to the knock-on effects of geopolitical factors.
Once again, this could be seen as ‘yet another green levy’, but the reasoning is more nuanced and could well in time have positive outcomes for both the planet and the UK.
What should businesses consider?
At this early stage, perhaps the first action would be to respond to the consultation.
Otherwise, consider the following:
Extent of exposure to imported refinery products, directly or through suppliers?
Margin sensitivity to fuel-price changes?
How to respond to potential price rises?
What emission information can be obtained from fuel suppliers?
If these emissions are/likely to be high, are there alternative sourcing strategies?
