As the European Union prepares for the definitive phase of the Carbon Border Adjustment Mechanism (CBAM) from 1 January 2026, the scope of the mechanism is being expanded beyond basic materials to include selected downstream products. This move reflects growing concern that carbon leakage risks do not stop at raw materials, but continue along industrial value chains.

From basic materials to downstream goods

CBAM currently applies to a limited set of carbon-intensive goods:

• aluminium
• iron and steel
• cement
• fertilisers
• electricity
• hydrogen

It places a carbon price on the embedded emissions of imported products, ensuring equal treatment with EU-produced materials that already face carbon costs under the EU Emissions Trading System (ETS).

However, many EU manufacturers rely on these materials as inputs to produce goods further down the value chain. As CBAM is phased in and ETS free allowances are phased out, downstream producers risk higher input costs for both imported and EU-sourced materials. This can undermine competitiveness and lead to carbon leakage, either by shifting production outside the EU or by replacing EU products with more carbon-intensive imports.

Why the extension is needed

Under Article 30 of the CBAM Regulation, the European Commission is required to identify downstream products at high risk of carbon leakage. In line with the European Steel and Metals Action Plan, the Commission is therefore proposing to extend CBAM to steel- and aluminium-intensive downstream goods.

The objective is clear:
for these products, imports should bear the same emissions-related cost as products made in the EU, within the limits of the ETS.

Which products are included?

The proposal adds 180 downstream products to the CBAM scope. Key characteristics include:

• High carbon leakage risk
• High steel and/or aluminium content, averaging 79%

Breakdown of affected goods:

• 94% are industrial supply-chain products, used in heavy machinery and specialised equipment (e.g. base metal mountings, cylinders, industrial radiators, casting machinery)
• 6% are household goods, such as washing machines

In trade terms:

• These products represent about 15% of CBAM goods by volume
• Around 53% by value
• By 2030, they are expected to generate 20–25% of total CBAM revenues

How emissions will be calculated

CBAM will apply only to emissions embedded in precursor materials, not to downstream manufacturing processes.

For example:

• A car door imported into the EU will face CBAM charges only for the steel plates used, not for forming or assembly.
• This mirrors the EU ETS, where downstream producers face carbon costs indirectly through input materials.

For complex products with multiple inputs, default values without a mark-up will apply to avoid excessive administrative burden.

Strengthened anti-circumvention rules

To prevent abuse, the proposal introduces:

• Additional reporting requirements for product composition
• Measures to address weak supply-chain traceability
• The option to impose country-specific default values where misdeclaration risks are high

The downstream extension of CBAM marks a structural change, ensuring carbon leakage is addressed across the full industrial value chain. For steel- and aluminium-based industries, carbon performance will increasingly influence market access and competitiveness, not just regulatory compliance.