UK sets an illustrative CBAM rate for steel at £9.69 per tonne of CO₂e: about £32 a tonne on hot-rolled coil at default values

What happened

On 16 October 2026 HMRC published a note on illustrative CBAM rates and a worked example for the UK carbon border adjustment mechanism, which starts on 1 January 2027. The UK charge has no single headline rate in law. Instead, the Finance Act 2026 sets a method: the average UK ETS auction price for the previous quarter is reduced to reflect the free allowances that domestic producers in each sector still receive. The illustrative rates use the Q3 2026 average UK ETS price of £58.15 per tonne of CO₂e and early baseline data that the UK ETS Authority is still checking.

The illustrative rate for iron and steel is £9.69 per tonne of CO₂e. Aluminium is £9.79, hydrogen £9.24, cement £8.78 and fertiliser £1.45. HMRC says these figures show how the method works and the likely scale of future rates, but they are not forecasts and do not create or imply a tax liability. The data behind them is likely to change before 1 January 2027.

On the same day the government published default emission values for every in-scope iron and steel CN code. HMRC states that they apply to each CBAM good regardless of origin. Hot-rolled coil of 4.75 mm to under 10 mm (CN 7208 37 00) has a default value of 3.314 tCO₂e per tonne. Hot-dip galvanised flat steel under CN 7210 49 00 has 3.049, and rebar under CN 7214 20 00 has 3.040. The guidance also warns that a CBAM return filed on default values cannot be amended later with actual emissions data.

HMRC’s rates guidance confirms that the CBAM rate applies to the embodied emissions of the imported good. The rate that counts is the one for the quarter in which the good was imported, and rates will be published by the start of each quarter from 1 January 2027. The rates for the first quarter of 2027 will be published before the end of this year.

The method, step by step

HMRC’s note sets out the sector rate as the average UK ETS price × [1 − (baseline free allocation percentage × phase-out reduction factor)]. The reduction factor for 2027 is 97.5% and is the same for all five sectors. In HMRC’s worked example for cement, the inputs are £58.15 and a baseline free allocation of 87.1%, which gives £8.78. HMRC does not publish the steel baseline percentage in the note.

Analysis Working back from the published figures, the steel rate of £9.69 is about 17% of the £58.15 average carbon price (Loharo calculation). In other words, on current data, a UK importer of steel would pay roughly a sixth of the UK carbon price per tonne of embodied CO₂e, because UK steelmakers still receive most of their allowances free. As free allocation is phased out, the rate should rise, but each quarter’s figure will also move with the UK ETS price.

What it means in pounds per tonne

Multiplying the default values by the illustrative steel rate gives these planning figures (Loharo calculations, before any relief for a carbon price paid abroad):

• Hot-rolled coil, CN 7208 37 00: 3.314 × £9.69 ≈ £32.11 per tonne.
• Hot-dip galvanised flat steel, CN 7210 49 00: 3.049 × £9.69 ≈ £29.55 per tonne.
• Rebar, CN 7214 20 00: 3.040 × £9.69 ≈ £29.46 per tonne.

EUROMETAL, the European steel distribution association, gave the same order of magnitude for hot-rolled coil, about £32 per tonne, in its report of 20 October.

Analysis At the ECB reference rate of 19 October (£0.84205 per euro), £32.11 is about €38 per tonne. Our EU CBAM worked example put the EU cost of blast-furnace hot-rolled coil on a default value at about €131 per tonne for 2026, or about €60 per tonne with verified supplier data. The two systems are built differently, with different defaults, mark-ups and free-allocation adjustments, so this is not a like-for-like comparison. Still, on today’s numbers the UK charge on default values looks a fraction of the EU one.

Why it matters

Analysis Until last week, UK importers could not put a number on CBAM: our 14 October explainer still had to show the steel rate as pending. Now they can budget for it. For hot-rolled coil the illustrative cost is small next to a coil price of several hundred pounds a tonne, so for most buyers CBAM will matter less for price than for paperwork and cash-flow timing. Two points need care. First, the low UK rate depends on free allocation and the UK carbon price, and both can change quarter by quarter. Second, choosing default values is a one-way door for each return, because it cannot be amended later with actual data.

Analysis For mills and traders that sell into both markets, the gap between the UK and EU charges is the commercial point to watch. The UK is also considering bringing its CBAM closer to the EU’s, as Loharo reported on 14 October. A move towards EU-style rules would narrow that gap.

Who is affected

• UK importers of steel from outside the UK: they can now estimate their 2027 cost per tonne. Liability starts once the value of their CBAM goods passes the £50,000 minimum registration threshold. Steel scrap is excluded.
• Non-UK mills selling to the UK: they will be asked for verified emissions intensity for calendar year 2027. Where that is not yet available, importers may use the verified figure for the previous calendar year.
• Traders and service centres supplying both the UK and the EU: CBAM costs differ between the two systems on the same coil, which affects where material is sold and at what price.

What to watch next

• Q1 2027 rates, before 31 December 2026: these are the first rates that create a liability. Check how far they move from £9.69 once the UK ETS Authority finishes its baseline checks.
• Quarterly UK ETS prices: each new quarter’s rate is based on the previous quarter’s average auction price.
• Supplier data for 2027: decide early, product by product, whether to use verified actual data or default values, because a return filed on defaults cannot be amended later.
• UK–EU alignment: any change towards EU-style rules would alter both the method and the cost gap.

Sources

Primary sources

• Carbon Border Adjustment Mechanism (CBAM): illustrative CBAM rates (and worked example) — HMRC, GOV.UK, 16 October 2026
• Iron and steel default values — GOV.UK, 16 October 2026
• Rates for the Carbon Border Adjustment Mechanism (CBAM) — HMRC, GOV.UK, 16 October 2026
• Carbon Border Adjustment Mechanism (CBAM): policy summary — HMRC, GOV.UK, updated 16 October 2026
• Getting the emissions intensity when importing CBAM goods — HMRC, GOV.UK, 16 October 2026
• Euro foreign exchange reference rate, GBP — European Central Bank, 19 October 2026

Supporting sources

• UK unveils indicative CBAM calculation values for 2027 — EUROMETAL, 20 October 2026

Related on Loharo

• UK CBAM from 1 January 2027: what steel importers know, and the rate that is still pending (14 October 2026, before the illustrative rate was published)
• How CBAM feeds into the landed cost of imported steel: a worked example
• UK weighs aligning its 2027 CBAM with the EU’s

Last fact-check: 20 October 2026 (Europe/Amsterdam).