CBAM Is Coming: How Should Your Business Prepare?
In this episode of The AIC Podcast, Harriet Trewin and Jo Gilbertson from AIC’s fertiliser sector join Wendy Ford, AIC Communications Manager, to discuss the Carbon Border Adjustment Mechanism (CBAM) and what it could mean for fertiliser businesses, farmers and the wider agricultural supply chain.
We explore why CBAM is being introduced, how it is intended to address carbon leakage and create a fairer balance between UK-produced and imported goods, and why its success will depend on the scheme being practical, predictable and proportionate.
We cover:
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What the Carbon Border Adjustment Mechanism is, why it is being introduced and the issue of carbon leakage it is intended to address.
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Why nitrogen fertilisers fall within CBAM’s scope and how additional carbon-related costs could affect fertiliser pricing, availability and the wider agricultural supply chain.
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What remains uncertain, including free allowances, default emissions values and the information businesses will need to calculate their potential liability.
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How businesses can begin preparing by checking commodity codes, establishing who is legally responsible as the importer, improving record-keeping and speaking to suppliers about verified emissions data.
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How AIC’s CBAM calculator can help Members model different scenarios and develop an indicative range of potential costs while key policy details remain outstanding.
As Harriet Trewin explains, “Prepare as much as you can.” Although important details remain uncertain, businesses can take action now to understand their supply chains, gather emissions information and identify where potential risks may arise.
This episode is ideal for fertiliser importers, manufacturers, distributors, agricultural businesses and anyone who wants to understand CBAM, its potential implications and the practical steps businesses can take ahead of its planned introduction on 1 January 2027.
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Transcript
Wendy Welcome to the AIC podcast,
Wendy where we share practical guidance and insight for Members and help the industry understand how the agri food supply chain works. I'm Wendy Ford, I'm the AIC Communications Manager, and today I'm joined by Harriet Trewin and Jo Gilbertson, who look after the fertiliser sector here at the AIC. Today we're going to be talking all about the carbon border adjustment mechanism, also known as CBAM. We're going to be looking at why does CBAM exist, the impact it has on fertiliser sector, farming and the wider agricultural supply chain, how it all works and what should listeners take away from today's podcast. So let's get into it. Harriet, CBAM sounds pretty technical, but what is the simple story behind why we have it?
Harriet So CBAM stands for Carbon Border Adjustment Mechanism. It is a policy designed to put a carbon related charge on certain imported goods. CBAM is about decarbonisation and fairness. It aims to stop imported products gaining an advantage where they have not faced equivalent carbon costs. For fertiliser, the concern is that international, seasonal and commercially sensitive supply chains may face new pressure. So CBAM is not a new thing, there is a long term kind of policy direction in that space it's about, reducing emissions globally but the issue is if the UK businesses face carbon costs and and imported goods don't, then imported products can end up looking cheaper simply because they're produced under a different set of environmental rules. So CBAM is designed to address that imbalance.
Wendy As you say, CBAM is designed to address that imbalance. But what problem is CBAM trying to solve?
Harriet It's effectively trying to make sure everyone is playing by similar rules. The official term policymakers use is carbon leakage. That's when production moves to countries with less stringent climate policies, rather than emissions actually being reduced globally. The UK Government confirmed in December twenty twenty three that it would introduce a UK CBAM. This followed a consultation on addressing carbon leakage risk. It then consulted on the detailed policy design and the mechanism is planned to apply from the first of January twenty twenty seven.
Wendy And I guess with those points in mind, Jo, is CBAM about protecting the planet or protecting the industry?
Jo Supporters of CBAM see it as a climate measure because it's intended to reduce carbon leakage and encourage cleaner production. And they also see it as an industrial fairness measure, because UK producers shouldn't be disadvantaged when importers haven't faced comparable carbon costs. The concern for AIC Members, however, is that the balance only works if the scheme is practical, predictable and proportionate. Otherwise, it risks adding cost and uncertainty without delivering a clear supply chain benefit.
Wendy I can see why this is a significant issue for the fertiliser industry. But if we look to farmers and the wider agricultural supply chain, why should they care about CBAM?
Jo Well, obviously fertiliser is essential for crop and several fertiliser products fall within the scope of CBAM. CBAM is fundamentally concentrating on nitrogen fertilisers because of the link to the Haber Bosch process, which is extremely carbon intensive because it's using natural gas as a feedstock, and it's also using natural gas as the energy supply to actually power the process, and as nitrogen is so critical to, the production of crops, obviously anything that affects the cost of fertiliser production, for example, an additional tax on embedded carbon through CBAM impacts on farming, because obviously farmers are very sensitive to the cost of fertiliser at the moment, notably because of the volatility in global supplies. And therefore there's a concern that whilst CBAM might be seen as contributing to the reduction in carbon emissions, it's obviously doing that through the imposition of additional taxation.
Harriet But I think the cost is all to be determined. No one really knows until some of the detail comes out right from government. And at the moment we don't have that.
Jo I think that's fair. We've got indicative measures that we can look at with regard to. We know what the formulas are for calculating your C BAM liability, which are essentially the carbon price, the embedded direct emissions footprint of the product, and then, yet to be determined are the, free allowance. Discount that may be applied, which is based on, something that's yet to be declared by Government. And that's one of the problems, as Harriet states, you can look at how this is being modeled based on assumptions, but, until quarter four this year, we won't know the exact figures. And we don't know what the free allowance starting point. So
Jo we do know that the free allowances will taper out over a period of nine years, similar to the way it's been done in Europe. but other than that, we don't know what the starting point is. All we know at the moment is Government statements made in the House of Commons recently by the Minister concerned, when questioned on this, have indicated that there will be a generous free allowance. But these are the measures that we're looking for Government to, give us more information on and some indicative calculations. And the problem we've got at the moment, and which all our Members will be aware of, is without those we can't actually forward price fertilisers for our customers. And that's what's causing the biggest problem at the moment.
Wendy Let's move on to how agri food businesses should prepare. Harriet, do you have any advice?
Harriet First what I would say for businesses to prepare is first, check whether your input is fertiliser or other goods that are in scope. And, and I mean this way, don't rely on product names alone, check commodity codes. And the second thing is to work out whether you are legally the importer that determines whether you are responsible for CBAM. My third bit of advice would start keeping records. I'm sure you all do this and many Members do. Your records are second to none, but it's really important that you have, from day one what you imported, where it came from, its value, weight, commodity code, and any emissions data from the supplier. The fourth bit of advice would be to speak to suppliers early, ask whether they can provide verified emissions data and evidence of any carbon price already paid overseas. So you have as much raw data that you can have on your emissions the better for this calculation. And then finally, review contracts and purchasing plans. CBAM may not just affect the final tax bill. It may affect pricing, supply decisions, contract terms and the timing of fertiliser imports.
Jo Yeah I think that's that's that's good advice even in the absence of clear data, from government at the moment in terms of free allowances and default values, talking to people, supplying you with fertiliser, they've already gone through these hoops for the EU scheme. So being asked for emissions data shouldn't be an unusual request now. So that's the first I think it's good advice Harriet, is go and talk to these people and start getting information, understanding who can provide you with what, because that is likely to help you manage your exposure to risk. And an early view of that is more helpful in discovering when you're in the contracted window off the quarter for, And you've got orders piling up and you suddenly discover that you've got a supplier that can't provide you with emissions data, not when you want to find that out. So it's better to know now than later.
Wendy I think that's a really great point, Jo. The more data you can prepare in advance, the better off you're going to be. Or even if you can't get that data, if you know where to go get that data, it's better than not knowing at all. So that's definitely going to be really key if we start wrapping this up. What should listeners take away from this podcast?
Jo C BAM's happening is not going to be derailed. Government's view is it's happening on the first of January twenty twenty seven, and they're going to stick to that come what may, because industry needs certainty. And having made the policy decision, they're going to stick to it. It's designed to reduce carbon leakage where production shifts overseas instead of emissions actually falling. So it will apply to all imported products and precursors containing nitrogen made with the Bosch process. And as a result of that, clearly nitrogen fertilisers are in scope, and that's why we're concerned about that today. The impact on prices and availability is still uncertain because key details to do with free allowance allocation and default. Emissions footprints are uncertain. And the success or failure of CBAM really will depend heavily on the practical design emissions data and the default values. Whether or not you can verify accurate carbon footprints. So AIC's priority is making sure that those are available and are workable. And what we're aiming to do is make sure that it remains. As Government has stated, it's a tax. We can't do anything to stop that. But we're still concerned of the fact that we're lacking a lot of critical data, and that's what our efforts are on at the moment.
Wendy That's great. Have you got anything to add, Harriet?
Harriet Prepare as much as you can. We appreciate that there is still a lot of uncertainty in the calculations around the data, default values, etc., but that doesn't mean there isn't some things that you can do as companies to prepare. And I think it's really important to consider what those are as a company and start putting those in place. We at AIC will do our absolute best to keep pushing Government to remind them that we need this detail.
Jo And AIC does have a calculator have a look at it and in some, notional values to calculate a spread of risk that you think realistically your company might be exposed to. So put in different, carbon footprints, put in different carbon prices, put in different free allowances, and you'll see how the carbon cost liability affects your CBAM liability. Look at how a different value for free allowances affects how much CBAM you're going to pay. Look at different carbon footprint profiles for your products to see how that affects how much you're likely to pay. And even if you don't know the actual amount, you can work out what your likely range of, CBAM costs might be. And that helps you determine what your exposure is likely to be. And then finally, we're here for Members. So if you don't understand something, or you've got a question or you want to ask more detailed questions about footprints or free allowances or anything to do with CBAM. Drop us a line or pick up the phone. That's our role to support Members.
Wendy Perfect. Harriet Jo, thank you for joining me today and for sharing your expertise. As Jo said, AIC will continue working with Government and supporting Members every step of the way. I'm going to pop the AIC calculator link into our episode description, and this will also be available on the fertiliser sector of the home page. So thank you for listening to the AIC podcast. And if you haven't already, please make sure you subscribe to our podcast Thank you.
Wendy Members can find further updates, guidance and resources on the AIC website and through our member communications. Thank you for listening, and we'll be back with another episode soon. If you found this useful, please share it with a colleague and check the show notes for links and definitions. And again, thank you for joining us.
Wendy Views and opinions expressed in this podcast are those of the hosts and guests and do not necessarily reflect any organization they represent. This content is for informational purposes only and should not be considered professional advice. Listener discretion is advised. Thank you.
Author
Wendy Ford
Wendy Ford is Communications Manager at AIC, creating and overseeing the content published on AIC's website, emails, Member briefings, print publications, and social media.
