The European Commission has unveiled proposed changes to the European Union’s Carbon Border Adjustment Mechanism (CBAM), aiming to broaden the carbon import tax to cover a wider range of downstream products and prevent production from shifting to countries with less stringent climate policies.

Introduced in 2023 and scheduled to become fully operational in 2026 after a two-year transitional phase, CBAM is designed to curb “carbon leakage” — where emission-intensive manufacturing relocates to jurisdictions with weaker environmental standards — by equalizing the carbon cost between EU-produced goods under the EU Emissions Trading System (ETS) and imports. Under the current framework, CBAM applies to basic, high-emission materials such as aluminum, cement, electricity, and steel, with importers required to purchase CBAM certificates reflecting the carbon price differential.

In response to industry feedback during the transitional phase, the Commission’s new proposal would extend CBAM coverage to approximately 180 downstream products that are steel- and aluminum-intensive, including machinery, hardware components, vehicle parts, domestic appliances, and construction equipment — addressing risks that current CBAM rules could shift production away from the EU toward producers in countries with weaker climate policies. The product selection was informed by carbon leakage risk, climate relevance, and technical feasibility assessments.

The update package also includes enhanced anti-circumvention measures, such as stricter reporting requirements for improved traceability, mechanisms to correct misdeclared emission intensities, and the authority to apply default emissions values when actual values are unreliable. To support EU industry competitiveness, the proposal introduces a temporary fund to assist EU producers of CBAM-covered goods that are vulnerable to leakage, provided they demonstrate concrete decarbonization efforts.

Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth, noted that these reforms will strengthen the mechanism’s ability to protect European industry, promote cleaner production, and maintain fair competition while advancing climate goals.