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CBAM is a key environmental instrument supporting the EU’s goal of climate neutrality by 2050 in line with the Paris Agreement, complementing the EU ETS by applying a carbon price to goods sold in the EU, with a transitional phase starting in October 2023, financial obligations gradually applying from 1 January 2026 alongside the phase-out of free ETS allowances until 2034, strengthened by proposed measures to prevent circumvention, expand its scope to selected steel and aluminium-intensive downstream products from 1 January 2028, introduce temporary support for EU producers at risk of carbon leakage, and add flexibilities for international partners through carbon price equivalence, trade facilitation mechanisms, and enhanced outreach and technical assistance to promote decarbonisation beyond EU borders.

Extension to downstream products

The European Commission has announced that from 2028, the EU’s Carbon Border Adjustment Mechanism (CBAM) will expand to cover 180 steel and aluminium intensive downstream products, including machinery, appliances, and some household items. Currently applied to basic materials like steel, aluminium, cement, and electricity, CBAM will impose a carbon price on imports to align them with EU-produced goods under the Emissions Trading System (ETS) and prevent carbon leakage. Most affected products are industrial supply chain goods with high steel and aluminium content, used in heavy machinery and specialized equipment, potentially increasing production costs for EU manufacturers while ensuring emissions are reduced rather than relocated.

Additional anti-circumvention measures

The European Commission is reinforcing CBAM anti-circumvention measures by including pre-consumer aluminium and steel scrap in calculations, enhancing reporting for traceability, addressing emission misdeclarations, and gaining authority to require additional evidence or use country-average values when reported emissions are unreliable, ensuring fair carbon pricing for EU and imported goods.

Temporary Decarbonisation Fund

The European Commission has introduced a fund to support EU CBAM producers and reduce carbon leakage, reimbursing part of EU-ETS costs for at-risk goods, contingent on decarbonisation efforts, financed 25% by member states and 75% by EU revenues from CBAM certificate sales in 2026–2027, safeguarding competitiveness globally.

CBAM review report

The Commission’s report on CBAM’s transitional period (October 2023–2025) highlights its role in preventing carbon leakage, promoting global carbon pricing, and encouraging decarbonisation beyond the EU through outreach and technical support, while outlining governance, enforcement, and the roadmap for an efficient definitive regime starting in 2026.