The carbon border adjustment mechanism (CBAM) is due to take effect in the EU this year, and then for the UK in 2027, whereas the Extended Producer Responsibility (EPR) scheme was phased in on 1 April 2025 after the first deadline for businesses to submit their packaging data passed.
Effectively a tax on importers or manufacturers, each of these schemes address environmental goals but from different regulatory angles, however their interaction can affect companies in several ways.
How do they work?
CBAM applies to specific imports entering the EU, such as steel, aluminium, cement, fertilisers, hydrogen, electricity, and eventually more sectors. It requires importers to report the carbon emissions embedded in these products and to purchase CBAM certificates to pay a carbon price. This price reflects the costs EU producers already face under the EU Emissions Trading System (ETS), ensuring that imported goods do not gain an unfair cost advantage by coming from countries with weaker climate regulations. The aim is to prevent “carbon leakage,” where companies relocate production outside the EU to avoid carbon costs.
The UK will use default values to calculate the carbon content, but the EU is currently asking for full carbon calculations, although they are looking at reintroducing default values. To calculate the actual values, importers may need to use a carbon accountant. Even where there are default values, these may be higher than the actual values and larger businesses may want to calculate the actual values.
Both the EU and UK are introducing a threshold for smaller businesses. In the EU, the proposal is to introduce a threshold of 50 tonnes per importer per year. In the UK registration is required if a person imports more than £50,000 of CBAM goods in a rolling 12-month period, or the person expects to import £50,000 or more of CBAM goods in the next 30 days.
EPR applies to products sold within the EU, with a particular focus on packaging, electronics, batteries, and textiles. Under EPR rules, producers or importers are responsible for covering the costs of collecting, recycling, or safely disposing of products and packaging after they reach the end of their life cycle. Fees are typically based on the weight, material type, and recyclability of the items, meaning that using sustainable or easily recyclable materials can significantly lower costs. The primary goal of EPR is to shift the financial burden of waste management away from taxpayers and encourage producers to design products and packaging that are easier to recycle and less harmful to the environment.
What to prepare for
Strengthen Data and Reporting Capabilities
Both CBAM and EPR require businesses to gather and manage detailed information about their products. CBAM demands accurate reporting of the carbon emissions embedded in imported goods, while EPR requires precise data on the weight and materials used in packaging and products. Developing centralised systems or software to track these metrics helps avoid duplication, ensures compliance, and prepares businesses for audits.
Engage suppliers on environmental transparency
Supplier cooperation is essential for meeting CBAM and EPR obligations. Companies should request verified carbon footprint data from their suppliers, encourage the adoption of low-emission production methods, and collaborate with packaging providers to shift toward lighter, recyclable materials. Prioritising suppliers that already meet EU environmental standards can also reduce administrative burdens.
Redesign products and supply chains
Proactive design and sourcing choices can help businesses limit their exposure to both mechanisms. Using recycled or low-carbon materials reduces CBAM costs, while recyclable or lightweight packaging lowers EPR fees. Some companies may find it cost-effective to consolidate shipments or shift to EU-based suppliers entirely, eliminating CBAM obligations and simplifying compliance.
Plan financially for new compliance costs
CBAM and EPR introduce new operational expenses that can affect cash flow. Carbon certificate purchases and recycling fees should be incorporated into budgets early, allowing companies to reassess pricing structures or renegotiate contracts. Where possible, pursuing eco-certifications, subsidies, or incentives tied to sustainable design can help offset these added costs.
Stay proactive with evolving regulations
Both CBAM and EPR are expanding and evolving, with CBAM phasing in fully by 2027 and EPR rules differing across EU countries. Businesses should monitor legislative changes closely, train internal teams, and consider engaging external experts to ensure ongoing compliance. Treating these requirements as integral parts of a broader sustainability strategy can provide a competitive advantage rather than becoming a last-minute burden.
In summary
While CBAM and EPR are separate regulatory frameworks, their combined impact can be significant for businesses, particularly those importing carbon-intensive goods with substantial packaging. Together, these obligations can sharply increase costs, requiring businesses to integrate their data systems to track both emissions and material usage effectively. By prioritising low-carbon, recyclable materials, companies can reduce their exposure to both regimes, but in some cases, the combined costs may render certain imports uneconomical, prompting shifts in supply chains or a move toward EU-based or more sustainable suppliers. They may also feed into President Trump’s view of tariffs in both the UK and EU.
For more information on these schemes, contact our expert below.
UK draft legislation can be found here.
