The European Commission has announced a significant strengthening of the Carbon Border Adjustment Mechanism (CBAM), aiming to improve effectiveness, close loopholes, and prepare businesses for full implementation in 2026.

Background: What is CBAM?

The Carbon Border Adjustment Mechanism is a key EU climate policy designed to apply a carbon price to certain imported goods, ensuring they face costs comparable to products manufactured within the EU under the EU Emissions Trading System (ETS).

CBAM seeks to prevent carbon leakage, a situation where companies relocate production to countries with weaker climate rules. By aligning carbon costs, the mechanism supports EU industry competitiveness while encouraging global decarbonisation.

CBAM has been operating in a transitional phase since October 2023 and will enter full implementation on 1 January 2026, when importers will be required to purchase CBAM certificates reflecting embedded emissions.

Overview of the Latest Commission Update

Why the update?

Based on feedback from industry, Member States, and international partners, the Commission has introduced a strengthening package to address weaknesses identified during the transitional phase and ensure robust enforcement from 2026.

Core Objectives
  • Expand product coverage to close circumvention gaps
  • Protect EU industries exposed to carbon leakage risks
  • Improve cooperation with trading partners
  • Strengthen enforcement and anti-circumvention controls

Changes and Enhancements

a. Expanded Product Scope

CBAM will extend beyond primary materials such as steel, aluminium, cement, fertilisers, and electricity to include approximately 180 downstream products that are steel- and aluminium-intensive. These include machinery, appliances, automotive components, and household equipment.

This expansion is intended to prevent companies from avoiding carbon costs by importing finished or semi-finished products instead of raw materials.

b. Stronger Anti-Circumvention Measures

The Commission proposes stricter reporting and verification rules to ensure imported emissions data accurately reflects real carbon content. Where emissions data is missing or unreliable, authorities may apply default emissions values, potentially increasing payable CBAM costs.

These measures are designed to discourage under-reporting and manipulation.

c. Temporary Support for EU Industry

The EU will use revenue from CBAM to give short-term support to EU manufacturers. This support will help companies move to cleaner, low-carbon production and protect industries that depend heavily on high-carbon materials from losing competitiveness.

d. Flexibility for International Partners

To reduce trade concerns and support global cooperation, the proposal includes:

  • Accepting similar carbon pricing systems used in other countries
  • Recognising approved emissions verification bodies from partner countries
  • Making compliance procedures easier and faster

These steps are designed to encourage cooperation between countries and ensure carbon emissions are measured in a consistent way worldwide.

Why do these changes matter?

i. Fair Competition
  • The broader scope ensures more imports face carbon pricing, reducing incentives to shift production outside the EU and helping maintain a level playing field.
ii. Greater Climate Impact
  • Including downstream products captures emissions previously outside CBAM’s reach, increasing its overall decarbonisation effect.
iii. Balanced Industrial Transition
  • By combining stricter rules with targeted industry support, the EU aims to protect jobs and investment while maintaining ambitious climate goals.

Stakeholder Reactions

Industry groups have welcomed the direction of the reforms but note that further scope expansion, such as post-consumer scrap, may still be needed.

Internationally, the EU has confirmed that the UK will not receive a CBAM exemption until its carbon market aligns with the EU ETS. Some global trading partners continue to express concerns that CBAM could act as a green trade barrier if not applied transparently.

Further Steps

The proposals will now move through the EU legislative process, with discussions among Member States and the European Parliament expected in 2026.

Importers and supply chains should begin preparing for expanded reporting obligations and stricter enforcement, which will apply once CBAM enters full operation in January 2026.

Source : EU Strenthens CBAM

Rules : ip 25 3088

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