European Commission moves to tighten and extend scope of CBAM

The European Commission has proposed a significant reinforcement of the EU’s Carbon Border Adjustment Mechanism (CBAM), aiming to close loopholes, prevent circumvention and strengthen protection against carbon leakage. The measures, presented on 17 December, respond directly to feedback from industry and lessons learned during the CBAM transitional phase.

A central element of the proposal is the planned expansion of CBAM’s scope from 1 January 2028 to include selected steel- and aluminium-intensive downstream products. While CBAM currently applies to basic materials such as steel, aluminium, cement, electricity and fertilisers, the Commission now intends to cover around 180 downstream products, including machinery, industrial equipment and certain appliances.

According to the Commission, around 94% of the newly covered products are industrial supply-chain goods with a high average steel and aluminium content, used in heavy machinery and specialised equipment. A smaller share relates to household goods. The move is intended to prevent production shifts to countries with weaker climate policies and to avoid the substitution of EU-made products with more carbon-intensive imports.

Alongside the scope extension, the Commission is proposing additional anti-circumvention measures. These include enhanced reporting requirements to improve traceability, stricter controls on emissions data and new powers for authorities to address evidence-based cases of CBAM abuse. Pre-consumer steel and aluminium scrap will also be included in CBAM calculations, reflecting the role of scrap in reducing emissions in energy-intensive products.

To address competitiveness concerns, the Commission has also proposed a temporary Decarbonisation Fund to support EU producers still exposed to carbon leakage risks in third-country markets. The fund would partially reimburse EU ETS carbon costs for eligible producers, with support linked to verified decarbonisation efforts. Financing would come from CBAM certificate revenues, with 25% allocated by member states in 2026 and 2027 and the remaining 75% counted as an EU own resource.

The Commission also published a CBAM review report assessing the mechanism’s performance during the transitional period from October 2023 to the end of 2025. The report concludes that CBAM is already acting as a driver for decarbonisation beyond EU borders, supported by outreach and technical assistance, and outlines the roadmap toward the definitive regime from 2026.

Stéphane Séjourné, Executive Vice-President for Prosperity and Industrial Strategy, said:
“European industrial producers should be encouraged – and not deterred – in their decarbonisation efforts. This CBAM reform brings crucial and long-awaited measures to ensure a level playing field between EU and non-EU industrial producers. By strengthening CBAM, we support our industry’s decarbonisation, and secure European players’ competitiveness on the world stage. Today, the European Commission delivers on its commitments towards Europe’s strategic industrial sectors.”

Wopke Hoekstra, Commissioner for Climate, Net Zero and Clean Growth, added:
“Today, we are strengthening CBAM for competitiveness, climate, and independence. These measures protect Europe’s industries, safeguard climate investments, and ensure fair competition while cutting emissions. Building on lessons from the transitional period, this package prepares CBAM for the future at the heart of Europe’s clean and competitive transition.”

Soource and Photo: European Commission