The proposed amendment to the Carbon Border Adjustment Mechanism (CBAM) Regulation (EU) 2023/956 aims to strengthen the EU’s efforts to prevent carbon leakage and reduce global greenhouse gas emissions. The initiative reflects growing concerns that, as free allowances under the EU Emissions Trading System (ETS) are gradually phased out, carbon leakage risks may shift from basic materials sectors to downstream products that rely on those materials.
Scope Expansion: Iron, Steel and Aluminium-Intensive Downstream Products in Focus
The CBAM was initially designed to cover a limited number of carbon-intensive raw materials and basic products that are most exposed to carbon leakage risks. However, with the gradual removal of free ETS allowances, the European Union expects carbon leakage risks to increasingly affect downstream sectors using these materials.
Prepared under the framework of the European Steel and Metals Action Plan, the proposed revision focuses primarily on iron, steel and aluminium-intensive downstream products. Products selected for inclusion are assessed based on criteria such as import volumes, economic value, climate impact, and the technical feasibility of calculating actual embedded emissions.
Stricter Monitoring of Resource Shuffling and Circumvention Practices
One of the most notable aspects of the proposal is the introduction of stricter measures against practices aimed at circumventing carbon costs, particularly harmful resource shuffling.
Under the proposal, situations in which producers in third countries divert goods produced with high-emission technologies to non-EU markets while exporting only products manufactured in their cleanest facilities to the EU are classified as abusive practices. To address this risk and preserve fair competition, declarants may be required to provide additional evidence for products and countries of origin identified as high risk. Where sufficient evidence cannot be provided, embedded emissions will be calculated using default values established by the European Commission.
Other Key Provisions
Common Area with EFTA Countries
European Free Trade Association (EFTA) countries that incorporate CBAM into their domestic legislation will no longer be treated as third countries. Instead, they will form a common CBAM area with the European Union.
Recycled Scrap Rules
The proposal introduces safeguards to prevent pre-consumer aluminium and steel scrap generated within the EU and already subject to carbon pricing from being used to claim artificially low emissions in imported products. Where the origin of scrap cannot be verified, it will automatically be treated as pre-consumer scrap and included in emissions calculations.
Temporary Exemptions in Case of Market Disruptions
In exceptional circumstances that significantly disrupt supply chains or distort price formation within the EU internal market, the European Commission will be empowered to grant temporary exemptions from CBAM obligations for specific products for a period of up to two years.
Greater Flexibility for Electricity Imports
The rules governing the use of actual emissions data for electricity imports have been relaxed. The Commission will also assess the future use of real-time emission factors to improve the accuracy of emissions calculations for imported electricity.
Support for Least Developed Countries
As part of the external dimension of the European Green Deal, the EU will continue supporting the decarbonisation efforts of Least Developed Countries (LDCs) and their adaptation to CBAM requirements through the EU budget and international climate finance mechanisms.
Implementation and Reporting Timeline
Under the proposed framework, methodological changes relating to electricity imports are expected to be implemented in time for the first CBAM declarations due by 30 September 2027. Beginning on 1 January 2028, the European Commission will publish annual reports identifying additional downstream products that may be included within the CBAM value chain. Furthermore, the Commission will submit biennial reports to the European Parliament and the Council assessing the effectiveness of the mechanism in preventing carbon leakage.
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