The European Union (EU) continues to lead global efforts in climate action through its Carbon Border Adjustment Mechanism (CBAM). On September 30, 2024, the European Commission announced plans to expand the scope of CBAM. To inform this initiative, a stakeholder consultation was launched, open from September 30 to October 25, 2024, to gather insights on the feasibility and administrative costs of such an expansion. The findings will contribute to a report expected by the end of 2025, which will guide future CBAM developments to align with the EU’s climate goals.

As part of the broader European Green Deal, CBAM aims to address the risk of carbon leakage, defined as the relocation of carbon-intensive production to countries with less stringent environmental regulations. The mechanism is designed to ensure a level playing field by imposing a carbon price equivalent to the cost of local carbon emissions on imports, thereby safeguarding the competitiveness of EU industries while maintaining stringent climate policies.

Current CBAM Scope and Rationale for Expansion

During its transitional phase from 2023 to 2025, CBAM focuses on raw materials and upstream products such as cement, steel, and aluminum. However, the European Commission has identified potential gaps in the current framework. Producers could bypass carbon costs on raw materials by relocating production outside the EU and importing downstream products back into the bloc. To address this, the Commission considers extending CBAM to include downstream products, thereby preventing carbon leakage across all stages of the value chain.

CBAM’s current scope includes carbon-intensive products such as cement, steel, iron, fertilizers, hydrogen, aluminum, and electricity, as listed in Annex I of Regulation (EU) 2023/956. Expanding the mechanism to downstream products aims to ensure that the carbon footprint of both raw materials and finished goods is accounted for and taxed upon import into the EU.

Examples of downstream products include:

  • Steel-based products: Automobiles, structural steel components.
  • Aluminum-based products: Packaging materials, aluminum-framed windows.
  • Cement-based products: Concrete blocks, reinforced concrete elements.

These goods are the result of value-added processes that transform raw materials into final products. Including such items in the CBAM scope seeks to reflect their carbon costs more comprehensively.

Stakeholder Consultation Objectives

The European Commission’s consultation marks the initial step in evaluating the necessity, feasibility, and administrative implications of expanding CBAM. Open to a wide range of participants—importers, manufacturers, trade organizations, civil society, and academic researchers—the consultation seeks input on:

  • Administrative burdens and compliance costs, particularly for downstream product importers.
  • Practical challenges businesses may face if downstream products are included in CBAM.

This inclusive approach aims to capture a comprehensive understanding of the implications of extending CBAM to downstream products, enabling the Commission to assess the impact and design the necessary regulatory framework.

The insights gathered will inform a report to be published by the end of 2025, guiding CBAM’s development in the face of evolving global market dynamics.

Implementation Timeline

The European Commission has outlined key milestones for CBAM’s next stages of development:

  • Q4 2024 – Q1 2025: Initiation of accreditation processes for verifiers and exploration of downstream product inclusion.
  • Q2 2025: Potential expansion of CBAM rules to cover indirect emissions and additional upstream products based on emission valuation studies.
  • Q4 2025: Publication of a comprehensive report on CBAM’s impact.
  • 2026–2028: Full implementation of CBAM, requiring importers to pay for emissions through CBAM certificates.

Conclusion

The European Commission’s initiative to explore the expansion of CBAM underscores the EU’s commitment to advancing climate policies and addressing carbon leakage across the entire value chain. By incorporating downstream products, the EU aims to ensure that all goods entering its market reflect their true carbon costs, thereby promoting fair competition and robust climate action.