Fertiliser tax exemptions and changes under consideration

The EU Commission has proposed changes and partial delays to its carbon tax on imports of fertiliser and steel, known as the Carbon Border Adjustment Mechanism (Cbam), and the UK is facing pressure to follow suit.

A small business exemption has been put forward in the EU which would mean roughly 180,000 EU businesses would be exempt from the tax.

EU tax commissioner Wopke Hoekstra said: “By simplifying Cbam, we’re empowering companies to reduce their carbon footprint without compromising their competitive edge.

“While exempting around 90% of companies from Cbam reporting, we still ensure the capture of over 99% of emissions. This marks the first step in a broader Cbam review.”

See also: Fertiliser costs climb in early 2025 but may hold longer term

Law firm White & Case says the EU proposal would also delay the requirement to purchase Cbam certificates until 2027, as opposed to 2026 currently.

UK approach

Cbam is due to be implemented in the UK from 1 January 2027 and the government has made it clear it plans to be as closely aligned as possible with the EU to reduce trade frictions and administrative burdens.

A question was put to the government by Lord Fuller in the House of Lords on 12 March about what plans it had to ensure UK businesses were treated similarly to those in the EU.

Financial secretary to the Treasury Lord Livermore said to ensure the costs of complying with the UK Cbam were proportionate, it would apply only to firms importing Cbam goods valued at £50,000 or more over a rolling 12-month period.

He said: “The government estimates that this will exclude 80% of Cbam-eligible firms while retaining more than 99% of imported emissions within the scope of the tax.”

Lord Livermore added that the UK and EU were also giving “serious consideration” to linking emissions trading schemes.

Tariff

However, Cbam was branded by some peers as a “tariff” that would damage competitiveness.

The government was also questioned over whether an impact assessment had been carried out, and whether it had calculated the impact of the carbon border tax on the price of food grown in the UK.

Lord Livermore did not categorically confirm what assessments had been carried out, and responded by saying that the government did not expect Cbam on fertiliser to put UK farmers at a competitive disadvantage.

This is in contrast to industry modelling, which suggests it could add an additional cost of £15/t to UK rapeseed and £10/ha to the cost of growing wheat.