EU Expands the Scope of the Carbon Border Adjustment Mechanism (CBAM)
The European Commission has announced a new regulatory package introducing significant changes to the Carbon Border Adjustment Mechanism (CBAM). Developed in response to feedback from industry stakeholders and international partners, the package aims to enhance the effectiveness of CBAM and address implementation gaps identified during the transitional phase.
With the new regulation, the scope of CBAM will be significantly expanded as of 2028, while a temporary support mechanism will also be introduced for European Union (EU) producers facing ongoing carbon leakage risks.
CBAM Scope to Expand as of 2028
Under the new framework, starting from 1 January 2028, imports of certain products from non-EU countries will be subject to a carbon cost reflecting the greenhouse gas emissions generated during their production. This measure is designed to prevent carbon leakage resulting from the relocation of production to countries with lower environmental standards.
According to data published by the European Commission, the expanded scope will primarily cover downstream products with high steel and aluminium content.
180 New Products to Be Included in CBAM
With the updated package, 180 downstream products—including machinery, equipment, and various industrial goods—will be brought within the scope of CBAM. This expansion ensures that carbon costs are taken into account not only at the raw material level but also for intermediate and final products using these materials.
As a result, emission reductions are expected to be encouraged throughout the entire value chain.
Commission analyses indicate that:
Approximately 94% of the products covered are intermediate goods used in industrial supply chains;
On average, 79% of these products contain steel and aluminium;
These goods are typically used in heavy industry and specialized equipment.
Products within scope include metal fasteners, cylinders, industrial radiators, and casting machinery. Approximately 6% of the covered products consist of final goods intended for household use.
Stricter Reporting and Traceability Requirements
Based on experience gained during the CBAM transitional period, the European Commission is also strengthening reporting, verification, and traceability requirements.
In particular:
More stringent controls will be applied to prevent misreporting of emission intensities;
Product traceability obligations will be reinforced;
Pre-consumer steel and aluminium scrap used in production processes will be included in CBAM emission calculations.
These measures aim to ensure a fairer carbon pricing system for both EU-produced and imported goods.
Temporary Decarbonisation Fund to Address Carbon Leakage
One of the most notable elements of the new package is the establishment of a temporary Decarbonisation Fund for sectors where carbon leakage risks persist.
The primary objective of the fund is to mitigate competitive disadvantages faced by EU producers competing with lower-cost, higher-emission products in third-country markets.
Under this mechanism, a portion of the carbon costs paid under the EU Emissions Trading System (EU ETS) will be reimbursed for products identified as remaining at risk of carbon leakage.
Funding for the Decarbonisation Fund will be provided through:
25% of revenues generated from CBAM certificate sales in 2026 and 2027, contributed by Member States;
The remaining 75% financed from the EU budget.
CBAM Transitional Period Evaluation Report Published
In parallel with the regulatory updates, the European Commission has published an evaluation report covering the CBAM transitional period from October 2023 to 2025.
The report highlights CBAM’s potential to:
Prevent carbon leakage;
Promote global carbon pricing;
Accelerate decarbonisation efforts in non-EU countries.
It also emphasizes the role of technical assistance and capacity-building initiatives in strengthening CBAM’s impact beyond EU borders.
Final Implementation Phase to Begin in 2026
The Commission reiterates that CBAM will enter its final implementation phase on 1 January 2026. During this period:
Free allocation under the EU ETS will be gradually phased out by 2034;
CBAM will be fully implemented in parallel with this phase-out.
These developments significantly increase the importance of carbon footprint management, emissions reporting, and regulatory compliance for companies exporting industrial products to the European Union.