The European Commission has proposed changes to strengthen the EU’s Carbon Border Adjustment Mechanism (CBAM), including measures to close loopholes, prevent circumvention and extend its scope to additional products, following feedback from industry and international partners.
Under the proposals, CBAM will be expanded from 1 January 2028 to cover certain steel- and aluminium-intensive downstream products, in addition to basic materials such as steel, aluminium, cement and electricity. The move aims to address the risk that emissions are shifted rather than reduced, as higher input costs for EU manufacturers could otherwise encourage production to move to countries with weaker climate rules or increase imports of more carbon-intensive goods.
The Commission plans to include around 180 downstream products, mainly industrial goods used in heavy machinery and specialised equipment, with a smaller share covering household appliances. According to the Commission, most of these products have a high steel and aluminium content and face increased exposure to carbon leakage under the current CBAM design.
To further limit circumvention, the proposals introduce stronger reporting and traceability requirements and allow the Commission to act against misdeclaration of emissions. Pre-consumer steel and aluminium scrap will also be incorporated into CBAM calculations to ensure fair carbon pricing for both EU-produced and imported goods.
In response to concerns over competitiveness, the Commission has proposed a temporary support scheme for EU producers of CBAM-covered goods that remain exposed to carbon leakage in third-country markets. The scheme would partially reimburse EU ETS carbon costs, conditional on companies demonstrating decarbonisation efforts. Funding would come from CBAM revenues, with 25% of certificate sales in 2026 and 2027 allocated by Member States and the remainder treated as an EU own resource.
The proposals also introduce additional flexibilities for trusted international partners, including recognition of equivalent carbon pricing systems and provisions for negotiated trade facilitation measures.
Alongside the legislative changes, the Commission published a review of CBAM’s transitional phase, covering October 2023 to the end of 2025. The report concludes that CBAM has helped address carbon leakage risks and encouraged decarbonisation beyond the EU, supported by outreach and technical assistance, and sets out a roadmap for the definitive regime due to take effect from 2026.
CBAM is a central element of the EU’s strategy to achieve climate neutrality by 2050, operating alongside the EU Emissions Trading System as free allowances are phased out through to 2034.
