Lawmakers in the European Parliament’s Environment Committee (ENVI) adopted a position supporting a European Commission proposal to help avoid a shift in production away from EU manufacturers to those in countries with weaker climate policies by expanding the Carbon Border Adjustment Mechanism (CBAM), the EU’s carbon tax on imported goods, to a series of downstream products.
While largely supporting the Commission’s proposal, the Committee’s position adds a series of anti-circumvention measures as well, aimed at closing loopholes and strengthening the enforcement of CBAM.
The proposed CBAM changes adopted by ENVI may form the basis of Parliament’s position in negotiations with the Commission and EU Council, if adopted by lawmakers in an upcoming vote. Member states in the EU Council adopted their position in June.
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.
While the Council’s recently adopted position emphasizes expanding the scope of CBAM to a wider list of downstream products than the Commission’s proposal, the Committee’s position includes proposals aimed at strengthening CBAM’s anti-circumvention measures.
One of CBAM’s current anti-circumvention measures includes a provision focused on slightly modifying goods with minor changes introduced that enable them to fall outside of the covered product list. ENVI’s anti-circumvention proposals include tightening rules for “slightly modified” goods to also cover slight processing, while also ensuring that the rules only apply to changes made specifically to dodge CBAM, and due to normal business decisions.
The Committee’s position also looks to add new rules for online sales to close an online imports loophole, and also empowers the Commission to apply the true country of origin’s default values where a pattern of circumvention is found.
Additional changes included in the adopted position include the replacement of a Commission proposal to allow goods to be removed from the scope in the event of price shocks with a mechanism to instead temporarily redirect CBAM revenues from the goods concerned to the affected sectors, as well as a proposal for simplified reporting for least-developed countries.
Additionally, the Committee agreed to remove the Commission’s option to count Paris Agreement Article 6 carbon credits against CBAM obligations, noting that the issue is likely to be discussed in the context of the upcoming revision of the EU ETS.
Alongside the CBAM proposal, the Commission in December also proposed introducing a “temporary decarbonisation fund” (TDF) designed to support EU producers of CBAM goods vulnerable to carbon leakage risk. The ENVI Committee also adopted its position on the TDF, adding measures to broaden the product coverage to include fertilizer producers and downstream users facing higher carbon-related input costs, with products such as urea, ammonium nitrate and ammonium sulphate added to the list of eligible goods, as well as the timeline of the fund, to run from 2027 to 2029 and not only from 2028 as proposed by the Commission.
Parliament is expected to adopt its negotiating position on CBAM and the fund during the September plenary session.
CBAM rapporteur Mohammed Chahim said:
“We have closed important loopholes, strengthened enforcement against circumvention, and expanded the mechanism’s scope where it matters most. It is a balanced package that protects European industry as it decarbonises while safeguarding the environmental integrity of the mechanism.”
