The CO2 Border Adjustment Mechanism (CBAM) Carbon Border Adjustment Mechanism), introduced by Regulation (EU) 2023/956, is one of the foundations of EU climate policy. Its main goal is to prevent the phenomenon of so-called "carbon leakage," which occurs when European companies relocate production to countries with less stringent environmental regulations or when EU products are replaced by cheaper but more carbon-intensive imported equivalents. Currently, after the transition phase ends at the end of 2025, the target stage of the mechanism will begin in January 2026 for basic raw materials such as aluminum, cement, fertilizers, hydrogen, and iron and steel..
The European Union, however, is not resting on its laurels. According to the latest draft amendment to the regulation (COM(2025) 989 final), the CBAM system will see a significant expansion of the product range covered by this regulation from 1 January 2028.
The problem of "double cost pressure" and the justification for expansion
In order to understand why the European Commission decides to include products from further stages of the value chain (so-called processed or downstream goods), it is necessary to look at the market realities. EU producers of processed goods using steel or aluminum as semi-finished products are facing the growing phenomenon of double cost pressure (dual cost-push). On the one hand, the EU's growing climate ambitions and the gradual phasing out of free allowances under the EU Emissions Trading System (EU ETS) are increasing the costs of raw materials produced within the EU. On the other hand, the implementation of CBAM increases the costs of imported primary raw materials that are included in its scopeAs a result, there is a growing gap between the total carbon costs incurred by EU producers and those incurred by third-country producers, creating a huge risk of carbon leakage for specific end products..
In accordance with the requirements of Article 30 paragraph 3 of the current Regulation, the European Commission is obliged to identify processed goods exposed to this riskThe first choice was products in the metals sector, which is consistent with the European Action Plan for the Steel and Metal Industries.The justification for such action is confirmed by impact assessments, i.e. the inclusion of processed products will reduce the carbon leakage rate by as much as 76% compared to the scenario without CBAM (compared to a 43% reduction in the current regulation).
The European Commission has been examining various options for the extension and ultimately recommends the so-called "Option 2" – a balanced approach focusing on goods with a high risk of carbon leakage and significant carbon intensity.This option maximizes environmental benefits while reducing costs in terms of additional system complexity and administrative burdens for importers..
What new products (CN codes) will be covered by the CBAM extension?
From 2028, Annex I to the CBAM Regulation will be significantly expandedPreviously, it covered only raw materials. Once the amendment comes into force, the new obligations will cover broad categories of products that intensively use iron, steel, and aluminum.Importantly, the extension excludes goods made exclusively from materials not subject to CBAM..
Here are key examples of product groups for which importers will have to account for their carbon footprint:
- Iron and steel products: This will include, among others, structures and parts of structures (codes from group 7308), tanks, vats, cisterns (7309, 7310, 7311), as well as wire ropes, nets, strands and grids (7312, 7314).
- Fasteners and castings: The obligation covers screws, bolts, nuts, rivets, washers (7318), springs (7320) and other cast iron or steel articles (7325, 7326).
- Combined metal products: This is a completely new, very important categoryIt will include, among others, compression-ignition internal combustion piston engines (codes from group 8408), pumps (8413), winches, cranes and overhead cranes (8425, 8426).
- Electric machines and vehicles: The new rules will affect importers of DC and AC motors and generators (8501), transformers (8504) and motor vehicles for the transport of goods (including purely electric vehicles and hybrids with a GVW of over 20 tonnes) (8704).
- Parts and accessories: The regulation will also affect the import of vehicle parts, including suspensions, shock absorbers and radiators (8708), metal office furniture (9403) or prefabricated buildings (9406).
Such deep penetration into supply chains (supply chains) will pose a huge challenge in terms of obtaining accurate data from suppliers (third-country operators) and verifying reports.
Emissions calculation methodology for complex goods
Calculating embedded emissions for complex products with multiple components is a challenge from a reporting perspective.. Multi-stage manufactured goods require precise carbon footprint tracking along long global value chains..
According to the new definition in Annex IV, the embedded emissions for goods in the categories "Iron and steel", "Aluminium" and "Combined metal products" will be calculated based on a formula that adds together the emissions directly attributable to the production process of a given good and the emissions embedded in the input materials used (so-called precursors).The importer (or authorized CBAM notifier) will be required to rely on actual data (actual embedded emissions) from the installation where the raw materials were produced.
In order to mitigate administrative costs in the absence of verified data on actual emissions for complex products at the end of the chain, the legislator is introducing a simplification, i.e. for selected, defined processed products it will be possible to use default values without adding a penalty mark-up, which is not intended to weaken the environmental integrity of the mechanism but to facilitate compliance.These values will be prepared and made available by the European Commission..
Sealing the System: Scrap as a Precursor and Anti-Circumvention Regulations
The European Action Plan for the Steel and Metal Industry highlights the need to effectively combat attempts to circumvent CBAM regulations, which would pose a threat to reduction targetsThe changes introduced give the European Commission broad powers in this area.
The scrap issue
In the current legal architecture of CBAM, steel and aluminum scrap is treated as a zero-emission productHowever, analyses have shown that this leaves room for abuse, as foreign producers could declare products as made from cheap, emission-free pre-consumer scrap (so-called pre-consumer scrap), while under the EU ETS emissions from the production of such scrap are fully taxed.
Under the amendment, pre-consumer scrap – i.e. post-production waste generated in steel mills and processing plants – will be included in the calculation of embedded emissions as a feedstock (precursor) and will no longer be "emission-free"In turn, post-consumer scrap (from used products) remains free from assigned emissions (excluded as a precursor) so as not to hinder the development of the circular economy.The CBAM system will closely monitor to ensure that no one circumvents the law by falsely reporting pre-consumer scrap as post-consumer in order to understate their carbon obligations..
Fighting fraud and artificial structures
The amendment adds a definition of "abusive practices", i.e. actions aimed at fully or partially avoiding financial costs arising from CBAM, thus destroying the level playing field on the EU market.One such practice has been identified as artificially adjusting supply chains so that products can benefit from more favorable, lower default values.In response to the risk of a lack of supply chain traceability, the Commission will be able to require an Authorised CBAM Declarant to provide specific evidence of the actual place and time of production of goods for which actual emissions are declared.
A new, more flexible framework for electricity imports
Electricity is one of the pillars of the CBAM, but the implementation of the mechanism during the transition period showed that the rules for electricity imports were too rigid and discouraged third countries from trading in cheap, clean energyThe problem was that the existing default values only included production from fossil fuels, thus overestimating the carbon footprint of energy from countries developing renewable energy sources..
The amended document uses a completely new approach. From January 2026 (due to the need to quickly implement this change), the emission factor for imported energy will be based on the average grid emission factor, covering all energy sources from a given exporting country, including renewable energy sources (RES).
Additionally, the rules for proving actual emissions (actual values) have been made more flexible. Previously, the condition for their recognition was the absence of physical congestion (structural congestion) on the links, which was very difficult to meet in practice.This requirement will be removed entirely.The condition for Power Purchase Agreements (PPA) has also been changed, allowing indirect PPAs, provided that a verifiable contractual relationship between the electricity producer and the importer can be demonstrated.The capacity nomination requirement will only apply in the case of explicit capacity allocation..
Business facilitations, De Minimis threshold and registration obligations
The European Commission is placing great emphasis on ensuring that enlargement does not overwhelm SMEs with unnecessary bureaucracy.The simplifications already adopted introduce a very important threshold de minimis of 50 tonnes of total annual weight of imported CBAM goods for each importer.
Thanks to this exemption from CBAM obligations, approximately 182,000 of the smallest companies importing into the EU will be exempted, which will translate into administrative savings of EUR 1,123 million per year.In the case of the processed products sector itself (downstream), the threshold frees over 90% of importers from the CBAM bureaucracy while keeping over 99% of actual emissions within the mechanismThis is regulatory optimization at the highest level. Ultimately, it is estimated that the new reporting obligations will affect "only" approximately 3800-3900 additional small and medium-sized enterprises importing Annex I goods..
The key change from a systemic point of view will be the role CBAM Register and verifiers. Authorized declarants will have new tools at their disposal. Registering third-country operators directly in the European registry will become a necessary process for calculating embedded emissions based on verified values.Moreover, the operator will be able to provide only selected, synthetic data to the authorized CBAM reporting party, which will prevent the disclosure of trade secrets and technological know-how.In turn, the confirmation of the carbon price paid abroad (carbon price effectively paid) will now be closely linked to the carbon footprint certification process – the certification of the paid climate fee will be carried out by an accredited verifier.
Supervisory regulations are also tightening. National authorities will have greater powers to impose financial security (bank guarantees) on authorized applicants to ensure their financial stability and protect income from certificates.If the applicant does not have the appropriate number of certificates (at least 50% of the emissions must be covered by certificates deposited at the end of each quarter), the national authority will use the guarantee to collect the arrears..
Summary: Consequences and how to prepare for 2028?
The CBAM extension planned for 1 January 2028 is expected to deliver tangible environmental benefits by increasing emissions coverage while providing additional revenues estimated at €0,58 billion per year by 2030 (and approximately €0,69 billion by 2035).These funds will be allocated to the EU budget and will be used for economic transformation and to repay debts arising from NextGenerationEU loans. Additionally, CBAM will provide an incentive for third countries to adopt decarbonisation policies.
Although the target implementation is 2028, companies should start preparing now. So what should importers do?
- Supply Chain Analysis: Check whether the steel and aluminium products, fasteners, cars, electrical installations and other items you import are not included in the new list of CN codes in Annex I to Regulation COM(2025) 989.
- Conversations with suppliers outside the EU: The obligation to report true, verified embedded emissions means that you must require your Asian, American or African producers to implement advanced carbon accounting practices, including correctly accounting for pre-consumer scrap.
- Source optimization: If suppliers cannot provide verified data, you will be forced to use high default values, which will directly affect the price competitiveness of your product on the European marketEnsuring so-called "carbon compliance" is now a strategic element of purchasing policy.
- Technological support: It will be necessary to implement professional software and support services, which we offer through GreenReporting.eu. We will help you automate your calculation processes and securely integrate with the requirements of the new directives.
Expanding the CBAM mechanism isn't an evolution—it's a revolution in how coal is perceived in international trade. Companies that prepare their supply chains early will protect themselves from additional tax and financial barriers, gaining a powerful advantage over unprepared competitors.
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