European Council | Council Moves to Strengthen the EU’s Carbon Border Adjustment Mechanism

The Council today agreed its position on strengthening the carbon border adjustment mechanism (CBAM), the EU’s tool to fight carbon leakage and promote global decarbonisation, ahead of negotiations with the European Parliament. The new framework would extend the CBAM’s scope to new products and close loopholes that may be used to circumvent the system

” The EU remains committed to reducing climate emissions both within the Union and globally. Strengthening the CBAM and closing loopholes that can circumvent our rules is a key part in fulfilling that goal. The position agreed today is the first step in making the system more robust.” – Makis Keravnos, Minister of Finance of the Republic of Cyprus

In operation since 1 January 2026, the CBAM puts a price on carbon emitted during production of imported goods in the most carbon-intensive sectors: iron and steel, cement, fertilisers, aluminium, electricity and hydrogen, and encourages cleaner industrial production in non-EU countries.

Extending CBAM’s scope

In its current form, CBAM targets almost only raw materials. This creates a risk that EU-made products using a significant proportion of CBAM goods in their manufacture, in particular iron, steel and aluminium, could contribute to an increase of emissions outside the EU and replace similar EU products that are subject to the emissions trading scheme.

To prevent this, the updated legislation extends CBAM’s scope to a selection of such downstream products. In its agreed position, the Council has refined the list of new products to which the CBAM would be applied and mandates the Commission to conduct an annual review on future downstream products that could be included.

In terms of anti-circumvention, the Council’ largely agrees with the Commission’s original proposal which introduces new measures bringing pre-consumer metal scrap into CBAM’s scope and empowering the Commission to act when deceptive practices are detected during reporting by high-risk companies.

Serious and unforeseen circumstances

To deal with serious and unforeseen circumstances causing severe harm to the internal market, the Commission’s proposal laid out a process to temporarily exempt goods from the CBAM framework.

The Council position defines more precisely the mechanism to be followed in this regard and makes clearer the boundaries of the Commission’s exemption empowerment. It also insists that any such exemption should be based on clear and objective criteria, including EU exposure to severe price increases.

Next steps

Negotiations between the Council presidency and the European Parliament are expected to start as soon as possible after the Parliament adopts its own position, and with a view to finding an agreement before the end of the year.

Background

EU industrial producers must offset their CO₂ emissions with allowances from the EU Emissions Trading System (ETS). But for production outside of the EU, the ETS does not apply. As a result, carbon-intense EU production could increase in countries with less strict climate policy. This is called carbon leakage.

CBAM is the EU’s tool to counter this phenomenon. The CBAM regulation was formally adopted by the Council in April 2023 and became fully operational on 1 January 2026. It puts a fair price on carbon emitted during production of imported carbon-intensive goods in key sectors – iron and steel, cement, fertilisers, aluminium, electricity and hydrogen – and encourages cleaner industrial production in non-EU countries.

In September 2025, the Council adopted a set of changes to simplify CBAM further and cut red tape, as part of the Omnibus I legislative package. The regulation entered into force on 1 January 2026.

Compliments of the European Council