EU proposes to expand CBAM's scope to cover end-use sectors

The CBAM is the European Union's climate change response mechanism and is a crucial component in its drive to achieve a 55% reduction in carbon emissions by 2030 compared to 1990 levels, as reported. To prevent what the EU refers to as 'carbon leakage' – carbon-intensive products being imported into the EU's 27 countries – the mechanism allows a carbon tax to be imposed on products brought in from non-EU countries.

During the current two-year transitional period (from October 1 2023 to December 31 2025), the CBAM targets basic industrial materials such as aluminum, cement, electricity, and steel and will officially come into effect on January 1 2026. EU importers will pay a carbon price for emissions tied to these goods from 2028, levelling the field with EU-produced materials subject to the EU's Emissions Trading System.

The mechanism will raise costs for manufacturers using these materials in the EU and erode the competitiveness of their products, the release warned. This may cause EU-based production capacities to shift to other countries with weaker climate policies, and EU products may be substituted with carbon-heavy imports.

To ensure that carbon emissions are effectively reduced rather than relocated, the commission plans to expand the CBAM's scope to cover 180 steel and aluminum products, of which around 94% are goods with a high steel and aluminum content (on average 79%) used in heavy machinery and specialized equipment such as base metal mountings, cylinders, and industrial radiators, according to the release.

The commission has also launched a fund to reimburse part of the carbon costs incurred by EU producers of CBAM goods, which will enhance the EU products' competitiveness in the global market, the release mentioned.

For the fund financing, 25% of the revenues will come from the CBAM certificate sales in 2026-2027, while the remaining 75% will be in the commission's own resource budget package.

To further combat circumvention risks, the commission plans to incorporate pre-consumer steel and aluminum scrap into the CBAM calculation and enhance reporting requirements for better traceability of CBAM goods, according to the release.

"These measures protect Europe's industries, safeguard climate investments, and ensure fair competition while cutting emissions. Building on lessons from the transitional period, this package prepares CBAM for the future at the heart of Europe's clean and competitive transition," commented the Commissioner for Climate, Net Zero and Clean Growth Department of the European Commission, Wopke Hoekstra.

Written by Anthea Shi, shihui@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com