Tax and sustainability

Carbon Border Adjustment Mechanisms (CBAM) aim to prevent ‘carbon leakage’ by ensuring the carbon price of imports is equivalent to the carbon price of domestic production. The EU introduced a CBAM from October 2023 and the UK is consulting on implementing a CBAM from 2027.

EU CBAM

The EU CBAM currently applies to imports of certain cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen products. It is anticipated that the list of affected products will be increased in the future.

The EU CBAM came into force on 1 October 2023. From its inception to the end of 2025, it will be in its ‘transitional phase’, during which importers of in-scope products must submit reports on the emissions embedded in their goods. From 1 January 2026, importers will need to purchase CBAM certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU's carbon pricing rules.

UK CBAM

In common with the EU CBAM, under current proposals the UK CBAM would cover certain cement, iron and steel, aluminium, fertilisers, and hydrogen products. Unlike the EU CBAM, the proposed UK CBAM includes certain ceramics and glass products, but excludes electricity.

The proposed UK CBAM is expected to adopt a self-assessment tax model which is similar to that in operation for other indirect taxes. Certificates will not be required.

PwC can assist businesses in various ways in their journey to comply with EU CBAM and prepare for UK CBAM, including:

• Impact assessment - Helping businesses model the financial and administrative impact of CBAM on their operations/supply chain.
• Supplier/customer engagement - Working with suppliers and customers to identify key data points for CBAM reporting.
• Supply chain logistics strategy - optimising the supply chain, identifying mitigation measures.
• CBAM managed service/reporting platform - Working with businesses in identifying systems efficiencies to collect and report CBAM data.
• Reporting methodology - Identifying what businesses need to submit for CBAM reporting to remain compliant.
• Emissions calculations - Assisting in calculating the CO2e for in-scope goods.
• Education workshops (incl. decarbonisation) - educating suppliers around CBAM data collection and how to manage CBAM within the business.

By providing cash for specific investments, grants can accelerate innovations and investments that businesses want to pursue, but otherwise would not have the capital for. With an increasing ESG focus, grants can also support efforts by businesses to decarbonise or establish themselves in emerging green markets.

The potential prize here is significant as countries ramp up their efforts to spur innovation and decarbonisation. However, the landscape can be difficult to navigate.

In the UK, the government provides a number of grant programmes to help drive UK’s wider net zero, innovation, and regional development agendas. Billions of pounds have been set aside to promote business transformations and invest in technologies to help achieve government goals.

We can help your business navigate this landscape by developing a grant funding strategy that is tailored to your needs and support you with the application process.

Environmental taxes are taxes intended to encourage behaviour that promotes positive environmental outcomes. They include:

• Plastic Packaging Tax (PPT) - a tax on plastic packaging with less than 30% recycled plastic, manufactured or imported into the UK (including packaging on imported goods).
• Landfill Tax (LFT) - a tax on the disposal of waste, primarily at landfill sites (although there are some broader aspects of the regime). Devolved regimes apply in Scotland (Scottish Landfill Tax/SLFT) and Wales (Landfill Disposals Tax/LDT).
• Aggregates Levy (AGL) - a tax on the commercial exploitation of aggregate.
• Climate Change Levy (CCL) - a tax on the non-domestic consumption of energy.
• EU and UK Carbon Border Adjustment Mechanism (CBAM) - measures aimed at preventing ‘carbon leakage’ by ensuring the carbon price of imports is equivalent to the carbon price of domestic production.

Environmental taxes are an area of increasing interest and concern particularly in the context of growing market pressure to support the ESG agenda. These taxes also come with a new set of challenges for businesses, particularly regarding the level of data and due
diligence required from taxpayers.

We provide businesses with tax consultancy advice, compliance, and dispute resolution services in relation to the full suite of environmental taxes, as well as providing horizon scanning support helping businesses to identify and assess developing international exposures and opportunities within the environmental tax landscape.

A swathe of new environmental regulations, largely driven by the EU Green Deal, are impacting business with new compliance, reporting, registration and payment requirements. These include:

• Sustainability reporting: Corporate Sustainability Reporting Directive (CSRD) and the new Corporate Sustainability Due Diligence Directive (CSDDD).
• Circularity: Extended Producer Responsibility (EPR) laws for packaging, batteries, electronics and a wide range of consumer goods; a new EU Ecodesign regulation (ESPR), regulation of single use plastics, and a new Packaging and Packaging Waste Regulation (PPWR) change the landscape for retail, consumer, food, beverage and manufacturing clients.
• Due Diligence requirements are increasing, especially with the introduction of the EU Directive on Deforestation-Free products (EUDR), and CSDDD.
• Scrutiny of emissions including embodied carbon emissions, with compliance required under the EU Carbon Border Adjustment Mechanism (CBAM) and the new UK CBAM, as well as the UK Energy Savings Opportunity Scheme (ESOS).