Refinery products in the UK CBAM: London sets out a methodology, the EU will only assess in 2027

London consults on petrol, diesel and kerosene

HM Treasury and HM Revenue & Customs (HMRC) published a consultation on 28 October on extending the UK CBAM to refinery products. The focus is on petrol, diesel and kerosene, and no start date has been set yet. For European companies the process matters for two reasons. A large share of UK diesel comes from the Netherlands and Belgium, and London is the first country to draft a CBAM methodology for a sector the EU also has in view.

Fuels first, a date still missing

The proposal initially limits the scope to fuels and blending components from refineries. The consultation lists eight-digit commodity codes under heading 2710 for this, including motor spirit, gas oils and jet fuel. Neat low-carbon fuels such as ethanol and biodiesel (FAME) would remain excluded, and the government is considering proportional treatment for blended products. Only direct emissions would be covered at first, with indirect emissions from 2029 at the earliest. Hydrogen from separate production would be counted as a precursor.

The paper gives no timetable. The government intends to include a subset of refinery products as soon as feasible and to set out a timeline later. In March, the Treasury had still rejected a 2028 start. London expects initial liabilities to be modest. The CBAM rate would adjust the UK ETS price by a refining-specific deduction for free allocation, which will be phased out over an indicative nine-year period from 2027.

One refinery, many products

The biggest hurdle is allocating emissions. A refinery turns crude oil into a whole range of products at the same time, whereas a steel or cement plant has a much clearer product pathway. The consultation offers three options, namely a single emission intensity for the whole installation, a distribution of installation emissions across product groups, or intensities per process stage. In addition, London floats a formula for multifunctional processes that assigns more emissions to lighter products.

The government intends to calculate and publish default values itself before launch. UK default values have so far been based on EU data, which do not exist for refineries. The consultation states explicitly that importers should not gain an advantage from using default values over actual emissions. For suppliers outside the UK, primary data from the refinery are therefore likely to become the benchmark.

Why London is under pressure

Refining ended at Grangemouth and Lindsey in 2025, and Grangemouth has since operated as an import terminal. Four refineries remain, at Pembroke, Fawley, Stanlow and the Humber. According to UK energy statistics (DUKES 2026), the country was a net importer of 15.5 million tonnes of petroleum products in 2025. Diesel accounts for just under 40 percent of product imports. Of these, 31 percent came from the US, 26 percent from the Netherlands and 11 percent from Belgium. For jet fuel, Kuwait supplied 35 percent.

Domestic refineries, by contrast, pay the UK ETS carbon price, which stood at around £60 per tonne in early October. The trade association Fuels Industry UK expects additional costs of about £100 million per year by 2028 and had called for inclusion from 2028. A fuels CBAM would therefore to a significant extent affect deliveries from EU ports, whose product was not necessarily refined in the EU.

Diesel from Rotterdam: origin and ETS linking decide

Whether EU goods would fall under the UK CBAM at all depends on linking the emissions trading systems. In early October it was reported that negotiations on linking the EU ETS and the UK ETS have concluded. The agreement is due to be presented at the next EU-UK summit and to underpin mutual exemptions from both CBAMs. The details of these exemptions have not yet been published.

For fuels, much therefore depends on origin. Anyone reporting actual emissions must evidence the refinery of origin. The consultation itself points out that fuels are regularly blended with products from other refineries in Amsterdam, Rotterdam and Antwerp. As evidence it cites commercial contracts, bills of lading, import declarations, voluntary certification schemes and chemical testing, with the costs borne by the importer. Traders supplying the UK from the ARA region should check whether their documentation already allows tracing back to the refinery.

The EU is assessing, but has no proposal yet

Refinery products are not yet covered by the EU CBAM. The Commission had already named refineries as a possible additional sector in one of its first CBAM webinars. In its review report of 16 December 2025, it announced a second step for 2027 in which it will assess extending the scope to further ETS sectors such as chemicals. In its mandate of 15 September 2026, Parliament explicitly calls for an assessment covering chemicals and petrochemicals. In the July ETS review, however, chemicals are not treated as a near-term priority for extension.

London itself notes in the consultation that the EU has neither included refinery products nor proposed how to do so. The UK would thus be the first country with a CBAM for fuels. European refineries continue to receive free allocation under the EU ETS, and no CBAM-related phase-out is currently planned for them. The UK’s choices on emissions allocation and proof of origin are likely to become a reference point for the Commission’s 2027 assessment.

Two carbon prices on the same litre

A CBAM for refinery products only covers emissions from production. By far the larger share comes from combustion in the engine or turbine, and here the two sides of the Channel differ markedly. In the UK, refineries are subject to the UK ETS, while combustion in road transport carries no carbon price. Only fuel duty applies, currently 52.95 pence per litre and set to rise in two steps to 57.95 pence by 1 March 2027 under current plans.

In the EU, refineries fall under the EU ETS, where allowances traded at around €85 in early October. Combustion will be priced from 2028 through ETS 2. It applies when fuels are released for consumption, regardless of where they were refined, and in its first years releases additional allowances from a reserve once the price exceeds €45 per tonne (in 2020 prices). Several Member States are pushing for a further delay, but the European Council on 15 and 16 October only requested an updated impact assessment.

Germany bridges the gap with its national emissions trading system under the Fuel Emissions Trading Act (BEHG). On 15 October, the Bundestag decided to keep the price corridor of €55 to €65 per tonne for 2027, which works out at roughly 15 to 17 cents per litre of diesel before VAT. In Germany, imported and domestic fuel therefore already carry the same combustion price. The gap lies in production emissions, and this is the gap London wants to close with the CBAM.

Outlook

The consultation runs until 20 January 2027, with responses possible via an online form or by email to HMRC. Before that, the EU-UK summit expected in November is decisive for EU suppliers, as it is due to make ETS linking and mutual CBAM exemptions official. Companies supplying fuels to the UK should use the time until then to check whether they can evidence the refinery of origin for each delivery.

Support

If you would like to understand how the planned extension of the UK CBAM to refinery products could affect your deliveries to the UK, for example regarding proof of origin via the ARA region or a response to the consultation, please get in touch at helge@kolum.earth.