Legislative proposal

2025/0419(COD) – Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2023/956 as regards the extension of its scope to downstream goods and anti-circumvention measures – COM/2025/989 final, 17 December 2025.

For the latest developments in this legislative procedure, see the Legislative Train Schedule: 2025/0419(COD)

Issue

Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism ('CBAM Regulation') entered into force on 1 October 2023. The mechanism applies to cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

The current Commission proposal seeks to extend the CBAM to downstream steel and aluminium products, as steel and aluminium products can be used as intermediate inputs in the production of goods further down the value chain. Around 94 % of downstream products covered by the CBAM extension are industrial supply chain products with a high steel and aluminium content, used in heavy machinery and specialised equipment, such as base metal mountings, cylinders, industrial radiators or machines for casting. The rest are household goods, such as washing machines. The Commission notes that EU producers of these downstream products face cost increases, which may cause them to relocate certain downstream products to third countries with less stringent regulations, resulting in 'carbon leakage'. This is when businesses are incentivised to move production and/or investments to third countries or jurisdictions with less ambitious climate policies, or when EU-produced goods are replaced by carbon-intensive imports. This could lead to an increase in total global emissions, thus hampering the effectiveness of EU climate policy.

The aim of the Commission proposal is twofold: to maintain the EU's environmental objectives with regard to carbon leakage and protect EU industry by removing the incentives for companies to relocate in (or source from) third countries or territories with less stringent regulations. This latter objective was identified in the Commission's steel and metals action plan (March 2025), which complements two previous initiatives: the clean industrial deal and the action plan for affordable energy. The steel and metals action plan is built around six main pillars: ensuring abundant and affordable clean energy; preventing carbon leakage; promoting and protecting EU industrial capacities; promoting circularity for metals; defending high-quality industrial jobs; and derisking through lead markets and support to investment. The CBAM relates to the second pillar of the action plan. The action plan focuses on three issues: (i) certain downstream products of steel and aluminium; (ii) the risk of circumvention and avoidance of the CBAM; and (iii) the fact that current rules for electricity imports do not sufficiently acknowledge the progress made by electricity producers in third countries in decarbonising their electricity generation.

Main points of the proposal

The current proposal aims to amend the CBAM Regulation to address the aforementioned issues, i.e. (i) mitigating the risk of carbon leakage for steel and aluminium products currently covered by the CBAM further down the value chain by extending the CBAM's scope; (ii) tackling attempts to avoid compliance with the CBAM obligation (circumvention); and (iii) encouraging the decarbonisation of electricity imports by improving the technical rules for attributing emissions to electricity. The proposal also adds a new article to allow for the removal of a CBAM good in serious and unforeseen circumstances.

With regard to the first issue, the proposal introduces amendments in the regulation's body and annexes, adding a total of 180 downstream products with a high carbon leakage risk and a high steel and/or aluminium content (on average 79 %). In terms of circumvention, the proposal aims to tackle the risk of misdeclaration of emission intensity by introducing additional reporting requirements in specific cases to better capture the composition of CBAM goods. Regarding the last issue (electricity), the proposal aims to modify and streamline the methodology for calculating the embedded emissions of electricity.

The following is a non-exhaustive list of amendments.

Amendments to Article 2 (scope) of the CBAM Regulation would take into account certain elements specific to goods from EEA/EFTA countries. They would also provide for the possibility of exempting third countries that have requested integration of their electricity market into the EU's, through market coupling, under specific conditions.

Amendment to Article 3 (definitions) would add a definition of 'abusive practices'.¹

Amendments to Article 6 (CBAM declaration) would add embedded emissions for electricity to the information included in the CBAM declaration. They would also reinforce the CBAM declaration to address the risks of misdeclaration and abusive practices for embedded emissions. In the same vein, the article tasks the Commission with monitoring the CBAM's impact on the internal market at EU level and informing importers, authorised CBAM declarants, competent authorities and customs authorities of the risks of abusive practices for goods and origins.

Amendments to Article 7 (calculation of embedded emissions) would add a new paragraph to consider embedded emissions in precursors for determining goods' embedded emissions.

Amendments to Article 10 would establish that, if requested by the operator of an installation located in a third country, the Commission would register the information on that operator and its installation in the CBAM registry (Article 14), to enable verification of embedded emissions on the basis of actual emissions, as well as determination of the carbon price paid in a third country.

Amendments to Article 17 (application for authorisation) would insert a paragraph to cover cases where a competent authority finds that an applicant or authorised CBAM declarant has not demonstrated its financial capacity to fulfil its obligations under the CBAM Regulation.

Amendments in Article 19 refer to where embedded emissions are determined on the basis of actual emissions. They would enable the Commission (or national competent authority) to ask the authorised CBAM declarant – as part of reviewing the CBAM declaration – to provide evidence that the imported goods were produced at the installation declared.

Amendments to Article 25 would add a rule specifying that, for goods imports, the authorised CBAM declarant assuming the obligations set out in this regulation would be determined by the CBAM account number provided in the customs declaration (or any other relevant document produced when declaring goods listed in Annex I or processed products obtained from such goods for importation).

Amendments to Article 27(2) on circumvention would add the practice of artificially adjusting supply chains to allow goods to benefit from lower default values to the non-exhaustive list of types of circumvention.

A new Article 27a would task the Commission with monitoring the impact of the CBAM on the EU's internal market. If the Commission considered that the inclusion of a good in Annex I caused severe harm to the internal market due to serious and unforeseen circumstances related to impact on the price of goods, it would be empowered to adopt delegated acts to remove this good from Annex I until the circumstances have passed. The removal can be retroactive, meaning that if CBAM declarants had purchased CBAM certificates before the date the article is triggered, they could be reimbursed for the price they paid for those certificates.

Another amendment (new Article 28a) would provide for an emergency procedure. Delegated acts adopted under this article would enter into force 'without delay' as long as no objection is expressed by the European Parliament or the Council at the latest three months before the end of a five‑year period from the date of entry into force of the amended regulation. The delegation of power to the Commission would be tacitly extended for similar periods if the European Parliament or Council did not object.

An amendment to Article 30(6) would add to the Commission report on the application and functioning of the CBAM (i) the possibility of extending the regulation's scope to additional goods at risk of carbon leakage, (ii) the suitability of adopted implementing acts and delegated acts, and (iii) the suitability of the methods for setting default values and the mark-up applied to default values.

Lastly, the proposal would amend Annex I to expand the current list of iron, steel and aluminium goods covered by the CBAM, Annex IV on the calculation of the emission factor for electricity and Annex VI. It would also add Annex VIII containing the list of non‑CBAM goods and greenhouse (GHG) gases considered precursors (input materials).

Parliament's prior position

In its resolutions of 3 April 2025 on energy-intensive industries (2025/2536(RSP)) and of 19 June 2025 on the clean industrial deal (2025/2656(RSP)), Parliament welcomed the Commission's intention to present an anti-circumvention strategy before the end of the year, and to consider extending the CBAM to additional sectors as part of the upcoming review. It underlined the importance of an effective CBAM for phasing out the free allowances in the EU emissions trading system (EU ETS).

Prior positions of other EU institutions

In its opinion on the EU steel and metals action plan, the European Economic and Social Committee called for a legislative proposal under the CBAM review to 'set appropriate default emissions values to ensure the environmental integrity of the CBAM, discourage resource shuffling practices and extend the scope of the CBAM, as set out in Annex I of the CBAM Regulation, to cover relevant downstream steel-intensive sectors, while safeguarding SMEs' competitiveness by swiftly adopting the Omnibus I proposal'.

Preparation of the proposal

According to Article 30 of the CBAM Regulation (review and reporting by the Commission), before the end of the transitional period (December 2025, see below under 'Background information'), the Commission would present to the Parliament and Council (i) a report on the application of the regulation and (ii) a report that identifies products further down the value chain of the goods listed in Annex I that it recommends be considered for inclusion. These reports would, where appropriate, be accompanied by a legislative proposal by the end of the transitional period. In addition, the steel and metals action plan announced that the Commission would present a legislative proposal by the end of 2025 that includes additional anti-circumvention measures to maintain the mechanism's integrity.

In that context, the Commission launched a public consultation in July 2025 aiming to gather the opinions of all stakeholders on the possible extension of the CBAM's scope to specific downstream products, anti-circumvention measures and rules for the electricity sector, as well as on their possible social, economic, environmental and administrative impacts.

The consultation that led to the Commission proposal suggested that the risk of downstream carbon leakage is widely acknowledged as an issue that must be addressed by including downstream goods in the CBAM's scope. Similarly, a clear majority confirmed that there are circumvention risks that necessitate further strengthening of the regulation. There was also support for greater granularity in the information on material composition of different products within CN codes. For electricity, a large majority of stakeholders indicated that the current default values used in the CBAM are inadequate, and supported amending the conditions for using actual emissions. Regarding the latter, the consultation also resulted in specific recommendations to revise criteria around power purchase agreements, network congestion and interconnector nominations, which are seen as impractical or misaligned with market realities. The outcome of the public consultation confirmed stakeholder feedback received via other forums.

Points of view

Around the time of the Commission proposal's publication, Carbon Market Watch noted 'analysis reveals that industry's initially enthusiastic support for CBAM has waned as the planned phasing out of the free allocations it receives becomes a real prospect'. Moreover, the author pointed out that: 'One should approach the current narratives of the industrial lobby with caution. Many vested interests continue to pay lip service for the ETS and CBAM, but only as long as they don't have to pay a real price. But the CBAM won't deliver climate benefits if free allocation is not phased out.' If the EU desires a functioning ETS with a credible CBAM, it should extend the CBAM to more sectors, 'starting with chemicals and including all ETS sectors over time; phase out free allocation as planned, which is gradual enough for companies to adapt to the new costs; and redirect ETS revenue to genuine transformation with strong conditionality, not perpetual subsidies for the largest polluters.'

In a February 2026 briefing, experts from the Institut Montaigne noted that 'implementation challenges for CBAM remain (ensuring WTO compatibility, administrative burden for importers, handling trade partner pushback). More urgently, Europe's industry finds itself squeezed by high energy costs and foreign subsidy onslaughts, leading some to argue the entire ETS/CBAM edifice might need rethinking or even to be scrapped.' The author then examined three potential scenarios for the future, providing insights into each.

With regard to industry, in February 2026 several organisations representing companies investing in clean hydrogen, ammonia, steel and fertilisers wrote a letter to the Commission, the European Parliament and the Cyprus Presidency of the Council, calling for the removal of Article 27a of the CBAM given that it 'undermines market confidence and risks jeopardising investment in decarbonisation in CBAM sectors and beyond'.

Background information

The EU's emissions trading system is one of the Union's tools to lower GHGs in line with its climate commitments. The EU ETS sets a cap on the total amount of GHGs that can be emitted by regulated entities under the scope of the system. This cap is reduced annually in line with the EU's climate target, to ensure that overall EU emissions decrease over time. By 2030, EU ETS-covered installations will have to reduce their GHG emissions by 62 % compared to a 2005 baseline.

According to the Commission, by 2024 the EU ETS had helped cut emissions from European power and industry plants by approximately 50 %, compared to 2005 levels. Similarly, ECB analysis from 2023 shows that the EU ETS contributed to a reduction in emissions of 2‑2.5 percentage points per year. Nevertheless, the ECB analysts also found substantial evidence of companies shifting carbon-intensive activities with heavy emissions to outside the EU. This phenomenon, known as carbon leakage, is expected to intensify in the future as the EU progressively reduces the ETS cap, because a lower cap raises prices and incentivises avoidance of emissions.

To reduce the risk of carbon leakage, the EU adopted the CBAM in 2023. The CBAM complements the existing EU ETS by equalising the price of carbon between domestic products and third country imports. When fully phased in, the CBAM is expected to capture more than half of the emissions from the sectors covered by the EU ETS.

The CBAM Regulation was implemented over two phases. The pilot phase lasted from October 2023 to the end of 2025 and enabled businesses and authorities to adapt to the system and collect relevant information. During that phase, importers (or indirect customs representatives) had to apply to become authorised CBAM declarants, register in the CBAM transitional registry and report GHG emissions embedded in their imports in any given quarter.

As of 2026, the mechanism has been fully implemented. Authorised CBAM declarants now have additional obligations to purchase and surrender CBAM certificates corresponding to the emissions embedded in imports under the regulation, and submit a yearly declaration, including the total GHGs embedded in CBAM imports and the number of certificates surrendered.

In 2025, following the results of the first phase, the Commission proposed amending the CBAM Regulation. The proposal aimed to simplify and strengthen the regulation by (i) introducing a new, single de minimis threshold of 50 tonnes (mass-based), which will exempt the vast majority of importers (primarily individuals and SMEs) who import only small quantities of goods covered by the mechanism, (ii) simplifying the rules on imports still covered by the CBAM, and (iii) amending the sanctions and fines so the competent authorities can consider specific circumstances. The Commission also announced that, in accordance with the CBAM Regulation, it would publish a review of the CBAM's implementation and consider extending it to downstream products, which it did in December 2025.