The European Commission has unveiled a significant package of proposals aimed at strengthening the effectiveness of the EU’s Carbon Border Adjustment Mechanism (CBAM), responding directly to feedback from industry stakeholders and international partners. The measures, which will progressively apply from 1 January 2026, mark an important evolution of CBAM as the EU transitions from the current transitional phase to a fully operational regime.
Together, these changes seek to close circumvention loopholes, extend CBAM’s scope to key downstream products, and temporarily support EU producers exposed to carbon leakage, while reinforcing CBAM’s role as a global driver of decarbonization.
Until now, CBAM has focused on basic materials such as steel, aluminium, cement, electricity and fertilisers, aligning import costs with the carbon pricing faced by EU producers under the EU Emissions Trading System (ETS).
From 2026, the Commission proposes to extend CBAM to around 180 downstream products dependant on steel and aluminium inputs. This includes machinery, industrial equipment and selected household goods. This expansion addresses a structural risk identified during the transitional period: while CBAM protects EU producers of basic materials, downstream manufacturers face rising input costs that may incentivise production relocation or substitution with carbon-intensive imports.
Notably:
94% of the newly covered products are industrial supply-chain goods with, on average, 79% steel or aluminium content, such as base metal mountings, cylinders, industrial radiators and casting machinery.
A smaller share (6%) covers household goods, including appliances.
By capturing embedded emissions further down the value chain, the Commission aims to ensure that emissions are genuinely reduced rather than displaced outside the EU.
Building on lessons learned during the transitional phase, the Commission is proposing a set of targeted anti-circumvention measures, aligned with findings from the Steel and Metal Action Plan and stakeholder consultations.
Key elements include:
Incorporation of pre-consumer steel and aluminium scrap into CBAM calculations, promoting scrap usage and ensuring consistent carbon pricing between EU-produced and imported goods.
Enhanced reporting and traceability requirements to improve the accuracy of emissions data linked to CBAM goods.
New powers for the Commission to address evidence-based circumvention practices, including misdeclaration of emission intensity.
Authority to require additional documentation where reported values are unreliable, and to apply default country values in justified cases.
These measures significantly strengthen CBAM’s enforceability and reduce incentives for strategic manipulation.
In response to industry concerns, the Commission proposes a temporary support scheme for EU producers of CBAM goods who remain exposed to carbon leakage risks in third-country markets. This risk arises where EU exports compete with cheaper, more emission-intensive alternatives, potentially leading to higher global emissions.
The proposed fund would:
Reimburse part of EU-ETS carbon costs for eligible goods still facing carbon leakage.
Condition support on demonstrated decarbonization efforts, thereby rewarding cleaner production.
Be financed through 25% of CBAM certificate revenues in 2026 and 2027 (via Member State contributions), with the remaining 75% classified as an EU Own Resource.
This approach balances competitiveness concerns with climate ambition, reinforcing incentives for industrial decarbonization.
Acknowledging concerns raised by international partners, the Commission also proposes targeted simplifications and flexibilities, including:
Introduction of equivalence mechanisms for carbon tax and carbon price deductions.
A new legal basis for negotiated trade facilitation measures, such as mutual recognition of accredited verification bodies.
Additional flexibility in recognising equivalent carbon pricing systems.
Alongside the legislative proposals, the Commission published its CBAM Review Report. The report assesses CBAM implementation during the transitional period (October 2023–end 2025).
The report concludes that CBAM has already:
Contributed to addressing carbon leakage risks,
Encouraged carbon pricing and decarbonization efforts beyond EU borders, and
Benefited from targeted outreach and technical assistance provided to third countries.
The review also sets out a clear roadmap for the definitive CBAM regime from 2026 onwards, covering governance, enforcement and administrative readiness.
As CBAM moves into its definitive phase from 2026, the proposed changes significantly raise the compliance and strategic stakes for non-EU exporters supplying the EU market, particularly those operating in steel- and aluminium-intensive value chains.
For exporters from the Western Balkans, the implications are especially material. The region is deeply integrated into EU industrial supply chains, with many producers supplying intermediate and downstream goods. These will now fall within CBAM’s expanded scope. The extension to downstream products, combined with stricter anti-circumvention rules, means that exporters can no longer rely on partial processing, product reclassification or limited emissions data to mitigate CBAM exposure.
Key potential implications include:
Higher compliance burdens, notably the need for robust, auditable emissions accounting across the full production process, including scrap usage and upstream inputs.
Increased cost pressure for producers operating in jurisdictions without EU-equivalent carbon pricing, as default values or corrective measures may apply where data is incomplete or deemed unreliable.
Greater scrutiny of supply chains, particularly for firms exporting semi-finished or finished goods with high embedded steel or aluminium content.
Strategic competitiveness challenges, as EU customers are likely to favour suppliers able to demonstrate lower embedded emissions and regulatory certainty.
At the same time, the proposed equivalence and flexibility mechanisms create limited but important opportunities for Western Balkan exporters. This especially where domestic carbon pricing, energy reforms or decarbonisation investments can be credibly aligned with EU standards. Early engagement with verification systems, investment in emissions monitoring, and reassessment of product portfolios will be critical.
Overall, CBAM is transitioning from a reporting exercise into a market-shaping instrument. For Western Balkan exporters, proactive adaptation, rather than reactive compliance, will be decisive. This is the path to maintaining EU market access and long-term competitiveness.
We continue to monitor legislative developments closely and support exporters in assessing CBAM exposure, managing compliance risk, and aligning commercial strategies with the evolving EU climate and trade framework.
