EU: Commission proposes to extend CBAM scope and adopts implementing legislation

The Carbon Border Adjustment Mechanism (CBAM) is a framework that addresses the risk of carbon leakage by ensuring that goods, irrespective of whether they are imported or produced in the EU, are subject to an equivalent carbon price payable for the embedded carbon emissions generated in the production of such goods. Following a transitional period from October 2023, the next phase of CBAM started in January 2026, with a gradual phasing-in of carbon pricing on imported embedded emissions. 

In its so-called “Omnibus I” package, the European Commission introduced a set of amendments to decrease the CBAM regulatory burden which were officially published on 17 October 2025. For more details on CBAM and the Omnibus I changes, see our blog post.

Proposal for CBAM amendments

On 17 December 2025 the Commission published a proposal for a Regulation to further amend CBAM. The Proposal was accompanied by a press release and Q&A. Under the proposal, the CBAM scope would be expanded from 1 January 2028 to cover products further along the value chain of the steel and aluminium goods already subject to CBAM, in order to address residual carbon leakage risks. It would also introduce additional anti-circumvention provisions and refine the technical rules on how emissions are attributed to electricity.

Additional CBAM goods

The CBAM currently applies to basic material goods, listed in Annex I of the CBAM Regulation (aluminium, cement, electricity, fertilisers, hydrogen, and iron and steel). Goods produced downstream from these basic materials are only included to a very limited extent (e.g., tube, pipes, screws and wires). Other downstream products imported into the EU are currently not within the scope of CBAM and, thus, not subject to a carbon price, which provides an incentive to relocate the production out of the EU and import the downstream product instead – resulting in carbon leakage.

To address this risk, the proposal would broaden CBAM’s coverage from 1 January 2028 to include 180 additional downstream products with a high steel or aluminium content and would allow for a phased mark-up to be applied to certain of these items.

The Commission’s press release explains that the overwhelming majority (94%) of the additional downstream products are intermediate industrial goods with a substantial steel and aluminium share (on average 79%), typically used in heavy machinery and specialised equipment, for example base metal fittings, cylinders, industrial radiators or casting machines. Only a small fraction (6%) of the products concerned consists of household goods. 

According to the Q&A, the sectors most affected would include machinery, hardware and fabrications, vehicle parts, domestic appliances and construction equipment. One example of a downstream product proposed for inclusion is stranded wire, ropes and cables made of more than 95% stainless steel. The draft list, however, also captures more complex finished products incorporating several CBAM inputs, such as washing machines, which contain approximately 60% steel, 5% aluminium and 5% cement, and refrigerators. Finished passenger cars are not included in the proposed extension, but certain vehicles for the transport of goods, as well as vehicle components such as engines or chassis.

The Commission also proposes to factor pre-consumer aluminium and steel scrap into CBAM calculations, with the aim of incentivising scrap use to reduce emissions in energy-intensive goods.

In addition, the proposal signals that the Commission may in future revisions extend CBAM to downstream products in the cement, fertilisers and hydrogen value chains.

Additional safeguards

According to the proposal, feedback received during the CBAM transitional phase highlighted stakeholder concerns that existing safeguards against misreporting of emission intensities and other abusive practices are not robust enough. In response, the proposal envisages strengthened reporting obligations to improve the traceability of CBAM goods and to better address incorrect declarations of emission intensity.

The Commission would be empowered to act against substantiated attempts to circumvent CBAM’s financial obligations, including by requesting additional evidence where reported actual values are deemed unreliable and, in such cases, relying instead on country-specific default values. The proposal also introduces a new form of circumvention, namely the artificial restructuring of supply chains in order to benefit from lower default values.

Electricity imports

The Commission observes in the proposal that the existing rules do not adequately reflect the decarbonisation efforts of electricity producers outside the EU. It therefore suggests that default values should in the future be based on an emission factor representing the overall emission intensity of all electricity generation sources in the exporting country, rather than only fossil fuel-based generation as is currently the case. The proposal would also relax and adjust the conditions for reporting actual emissions from electricity, so that recourse to actual emission data becomes easier in practice.

These changes, once adopted, will apply to electricity imported as of 1 January 2026.

Other changes

Finally, the proposal suggests small improvements to the application of CBAM, such as extending the possibility for national competent authorities to request a guarantee, clarifying that operators may share verified emissions data with other operators, and changes to the record-keeping obligation of the authorised CBAM declarant.

The proposal also puts forward a number of more targeted refinements to how CBAM operates in practice. These include extending the possibility for national competent authorities to require a guarantee, clarifying that operators are permitted to share verified emissions data with one another, and adjusting the record-keeping obligations applicable to authorised CBAM declarants.

To prevent severe harm to the EU internal market due to serious and unforeseen circumstances, the Commission shall be empowered to remove goods from the scope of CBAM until such circumstances have passed.

In terms of geographical scope, and subject to the incorporation of the CBAM regulation in the agreement on the European Economic Area (EEA), the EFTA states (Norway, Iceland and Liechtenstein) shall not be considered third countries anymore, effectively creating a “common CBAM area”.

Next steps 

The draft Regulation now needs to be negotiated and adopted by the European Parliament and the Council under the “ordinary legislative procedure”.

Secondary legislation 

In the end of November – December 2025 the European Commission adopted several implementing acts, clarifying how CBAM applies from 1 January 2026.  These include: 

• Implementing Regulation on verification principles and Delegated act on accreditation and verification: these set out the verification principles to be followed by accredited verifiers, and the conditions to grant accreditation. Applicants for accreditation can be established in any third country in addition to the EU, but they need to be accredited by EU accreditation bodies.

• Methods for the calculation of emissions embedded in goods: this act provides rules for third country producers on how to monitor and calculate embedded emissions in goods they produce. If producers do not follow these rules, the importers of their goods will need to use default values.

• Calculation and publication of the price of CBAM certificates: this act outlines how the price of CBAM certificates is calculated and made available to declarants. The price will reflect the weekly average price of EU emissions trading system (EU ETS) allowances. Since CBAM certificates will be sold only from 1 February 2027, for goods imported in 2026, the price of CBAM certificates will reflect the average price of EU ETS allowances during a given quarter.

• Information communicated by customs authorities: this act lays down the rules for sharing information by national customs authorities with the Commission. 

• Calculation of the free allocation adjustment to the number of CBAM certificates to be surrendered: while free allowances under the EU ETS will be gradually phased out, CBAM will be gradually phased in between 2026 and 2034. This act lays down how the number of CBAM certificates to be surrendered should be adjusted to reflect the extent to which allowances are allocated free of charge under the EU ETS.  

• Establishment of default values: this act lays down the default values per Combined Nomenclature codes and per country of origin applicable in the definitive period. 

• CBAM Registry: the new rules are aimed at facilitating access for authorised declarants and persons with delegated access rights, as well as to customs authorities, and improving information exchange between the Commission and competent authorities.  

• Status of authorised CBAM declarant: this act amends the existing Implementing Regulation (EU) 2025/486 to reflect the Omnibus I CBAM amendments.  

CBAM review report

The Commission published a CBAM Review Report on the experience with the delivery of the CBAM during the transitional period from October 2023 to the end of 2025. The report assesses how CBAM has operated during the transitional phase from 1 October 2023 until the end of 2025. It examines how far CBAM has helped to mitigate carbon leakage and promote carbon pricing globally, and reviews its governance, administrative arrangements and enforcement mechanisms. The report also outlines the planned implementation pathway for CBAM’s application from 2026 onwards:

• Beyond the proposals published at the end of 2025, the Commission plans to adopt an implementing act on setting the rules for the deduction of a carbon price effectively paid in third countries in 2026. 

• In 2027, the Commission plans to publish a report evaluating ways to extend the scope further (i) to indirect emissions from further CBAM goods (iron and steel, aluminium and hydrogen) and (ii) to other sectors (such as chemicals).

• This shows that the Commission does not consider the scope of the CBAM as definitive, but plans to further expand it to cover more emissions, goods and sectors.

Temporary Decarbonisation Fund

To further mitigate carbon leakage risks, the Commission has also proposed a Regulation to create a so- called temporary decarbonisation fund. This fund would partially reimburse EU producers for the EU ETS carbon costs incurred in manufacturing goods that continue to face a residual risk of carbon leakage. The background is that with the introduction of CBAM, the free allocation of emission allowances under the EU-ETS – the initial instrument to mitigate the risk of carbon leakage – shall be phased out. While the CBAM shall level the prices for EU produced and imported carbon-intensive goods within the EU, this does not work for goods which are exported from the EU. Therefore, a portion of the EU-ETS carbon costs shall be reimbursed to relevant producers from the fund, which is to be financed with 25% of the revenues from the CBAM certificate sales. Access to this support would be conditional on EU producers demonstrating concrete decarbonisation efforts. The fund shall initially exist for two years, i.e. in relation to the carbon costs for 2026 and 2027.