The European Commission has proposed several measures to strengthen the European Union’s carbon border adjustment mechanism.
CBAM requires importers of covered products (currently iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen) into the EU to pay the difference between the carbon price paid in the country of production and the price of carbon allowances under the EU’s Emissions Trading System. CBAM levies are expected to be phased in, starting Jan. 1, 2026, in conjunction with the phasing out of free allowances under the ETS. However, the EU recently moved to exempt most importers from compliance.
According to a Commission press release, the proposed measures aim to strengthen CBAM by:
- expanding its scope as of Jan. 1, 2028, to include 180 goods with a high carbon leakage risk and a high share of steel and/or aluminum content (e.g., machinery, hardware and fabrications, vehicle components, domestic appliances, and construction equipment);
- closing loopholes to prevent circumvention, such as incorporating pre-consumer aluminum and steel scrap in CBAM calculations, enhancing reporting requirements for better traceability of CBAM goods, and addressing emission intensity misdeclarations; and
- introducing a temporary support scheme to protect EU producers vulnerable to carbon leakage.
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