Small and medium-sized enterprises face particular vulnerability to new carbon documentation requirements due to limited administrative resources, according to industry representatives. UK Steel’s Frank Aaskov specifically highlights concerns for SMEs, describing the paperwork as “quite a burden” for operations that may lack the staff, systems, or expertise to efficiently navigate comprehensive carbon tracking requirements.
Brussels has confirmed that the anticipated carve-out from the carbon border adjustment mechanism will not be implemented by year-end, with industry experts predicting no relief before Easter 2025. The mechanism requires detailed documentation of carbon emissions throughout manufacturing processes, affecting approximately £7 billion in UK exports. While larger manufacturers may have dedicated compliance teams and existing carbon monitoring systems, SMEs often operate with minimal administrative staff and may lack infrastructure for sophisticated emissions tracking.
The government’s failure to secure a pre-Christmas exemption means SMEs must begin implementing documentation systems in January. Manufacturing trade body Make UK describes the forthcoming requirements as “extensive,” suggesting substantial operational impacts particularly for businesses with limited resources. The documentation demands detailed paper trails of carbon emissions throughout production—potentially requiring investments in monitoring equipment, data systems, and trained personnel that represent proportionally larger burdens for smaller operations.
Industry representatives emphasize that SMEs often compete in the same ruthless markets as larger manufacturers, where Chinese imports are aggressive and margins as small as €5 per tonne can determine contract outcomes. Administrative burdens that larger companies might absorb through existing compliance infrastructure can prove more challenging for SMEs, potentially impacting their competitiveness even beyond any eventual tax costs.
Government representatives are advising businesses of all sizes to prepare for implementation from January, with support available through the Department for Business and Trade. The unsuccessful attempt to secure a pre-Christmas exemption reflects political realities within the European Union. Negotiations will proceed through two stages: establishing terms of reference, then addressing emissions trading system compatibility. Although actual tax payments won’t be required until 2027 and could potentially be cancelled through successful negotiations, SMEs must immediately begin navigating documentation requirements in January. EU Climate Commissioner Wopke Hoekstra has characterized discussions with UK officials as productive and suggested immediate costs will be minimal given Britain’s decarbonization progress, but SMEs may face particular challenges implementing necessary systems. The UK government continues prioritizing a carbon linking agreement to protect the substantial export market including numerous SME exporters.