Carbon Border Adjustment Mechanism: EU Extends Scope to Downstream Goods

A new amendment to the CBAM regulation, currently in parliamentary committee review, would extend the carbon tariff to downstream goods and add anti-circumvention measures.

CBAM Gets Bigger: EU Extends Its Carbon Tariff to Downstream Industrial Products

A proposed amendment to the EU's Carbon Border Adjustment Mechanism — the landmark climate measure that charges importers of carbon-intensive goods for the CO2 emissions embedded in their production — is working its way through the European Parliament committee process, with a draft opinion submitted by MEP Lynn Boylan extending the regulation's scope to downstream goods and adding anti-circumvention measures. The amendment, formally titled a proposal to amend Regulation (EU) 2023/956, represents a significant expansion of the CBAM's reach and addresses what proponents describe as a major loophole in the original design.

The original CBAM, which entered its transitional phase in 2023 and is now in full operation for direct imports of iron, steel, aluminium, cement, fertilisers, electricity, and hydrogen, does not currently capture the carbon embedded in finished goods that incorporate these materials. This creates an incentive for companies to process CBAM-covered materials outside Europe and import the finished products — paying no carbon cost — rather than importing the raw materials directly. The downstream extension would close this loophole by applying CBAM charges to imported finished products based on the carbon content of the materials used in their production.

The anti-circumvention measures address the related problem of companies routing trade through third countries specifically to avoid CBAM charges. As the mechanism has moved from design to operation, creative accounting and supply chain restructuring have emerged as tools for minimising CBAM liability in ways that reduce its environmental effectiveness without technically violating its letter. The proposed measures would allow the Commission to investigate and address such schemes, similar to the anti-circumvention tools available under EU anti-dumping law.