The European Council announced an agreement by EU member states on a series of proposed changes to the Carbon Border Adjustment Mechanism (CBAM), the EU’s carbon tax on imported goods, including expanding the scope of the CBAM to some downstream products, in order to avoid a shift in production away from EU manufacturers to those in countries with weaker climate policies.
The Council’s position will form the basis of its upcoming negotiations with the European Parliament on a proposal by the European Commission to strengthen the CBAM legislation. The position by the member states would add several more industrial products to CBAM than the Commission’s proposal.
The Council’s position also proposes introducing a requirement by the Commission to review CBAM annually to consider further expanding the scope to potentially add more downstream products.
CBAM was adopted in 2023, and entered into force at the beginning of 2026, to establish a mechanism designed to avoid “carbon leakage,” a situation in which companies move production of emissions intensive goods to countries with less stringent environmental and climate policies. CBAM is aimed at equalizing the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) – the EU’s internal cap and trade carbon pricing mechanism – with that paid for products produced in other countries, with companies that import into the EU required to purchase CBAM certificates in order to make up the difference.
The Commission proposed its update to expand CBAM in December 2025, following feedback from the program’s transitional phase which indicated a need to close loopholes to prevent circumvention and sources of carbon leakage, with CBAM currently targeting basic materials like aluminum, cement, electricity, and steel, raising costs for EU producers and risking the shift in production of downstream products to other countries.
The Commission’s proposal looked to include specific steel and aluminum-intensive downstream products in the program, adding 180 products with a high carbon leakage risk and a high share of steel or aluminum content, such as machinery, hardware and fabrications, vehicle components, domestic appliances and construction equipment.
The new position by the EU Council goes farther than the Commission’s proposal, adding a range of metal-intensive industrial, construction, machinery and electrical-equipment products, such as fork lifts, conveyor equipment, machinery parts, and electric motor components, among others.
The Council’s position largely aligns with the proposal by the Commission on proposed updates to CBAM to add a series of other anti-circumvention measures, including enhanced reporting requirements for better traceability of CBAM goods and to address emission intensity misdeclarations, and authority for the Commission to tackle evidence-based abuses circumventing CBAM.
The European Parliament is expected to adopt its position on the proposed CBAM updates in September.
In a statement released following the Council’s announcement, the EU Commission said:
“The European Commission welcomes the Council’s rapid progress, which demonstrates strong support for CBAM and a firm commitment to ensuring it remains effective in advancing the EU’s climate objectives and industrial transition.”
