The European Union is preparing to expand the Carbon Border Adjustment Mechanism (CBAM) beyond primary materials into selected manufactured goods as it phases out free allowances under the EU Emissions Trading System (EU ETS). The proposed changes are designed to address carbon costs embedded in products containing significant amounts of steel and aluminium while limiting carbon leakage further along industrial supply chains. Under the proposal, the expanded mechanism would apply only to selected downstream products rather than all manufactured goods, with the final product scope remaining subject to negotiations between EU institutions.
Expansion Targets Steel- and Aluminium-Intensive Products
The proposed downstream extension reflects the EU’s objective of preventing carbon leakage as European manufacturers gradually lose free EU ETS emission allowances. As domestic producers increasingly bear higher carbon costs for steel and aluminium, foreign manufacturers could retain a competitive advantage by sourcing lower-cost, more carbon-intensive materials. Extending CBAM to selected finished products is intended to reduce that competitive imbalance.
The proposed framework is not designed to cover every machine, electrical appliance, vehicle or furniture product. Instead, it focuses on goods with substantial steel or aluminium content where embedded emissions can be identified without creating an excessively complex carbon-accounting process.
Council Proposal Covers Industrial Equipment and Vehicle Components
The Council of the European Union’s negotiating text includes selected electric motors, generators, generator components, transformer categories, steel and aluminium electrical conductors, pumps, furnace burners, industrial furnaces, freezers, refrigeration equipment and heat pumps. The proposal also extends to selected goods vehicles, vehicle chassis, vehicle bodies and automotive components, including gearboxes, wheels, suspension systems and radiators. Additional downstream products identified in the negotiating text include metal-framed seats, office furniture, other metal furniture and prefabricated buildings incorporating steel or aluminium.
Commission Assessed Three Expansion Scenarios
The European Commission’s impact assessment examined three potential approaches to expanding the mechanism. A targeted option would introduce approximately 70–80 Combined Nomenclature (CN) codes, while a balanced option would cover 150–180 codes. A broader alternative would expand the mechanism to approximately 230–250 CN codes. The Commission identified the balanced option as its preferred approach, concluding that it would capture almost the same volume of emissions from EU production as the broadest scenario while applying to significantly fewer products and importers.
According to the assessment, 85–90% of goods included under the balanced option would contain at least 70% CBAM-covered materials by weight, making the embedded emissions associated with those products comparatively easier to attribute.
Final Product Scope Remains Under Negotiation
The Council of the European Union has already refined elements of the proposed product list, while the European Parliament may introduce additional amendments during the legislative process. As a result, the different expansion scenarios represent estimates of potential regulatory outcomes rather than the final legal scope of the downstream CBAM framework.
