CARBON BORDER ADJUSTMENT MECHANISM

COMMUNICATION FROM THE EUROPEAN UNION

The following communication, dated 3 July 2025, is being circulated at the request of the Delegation of the European Union.

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1._        In line with the EU's ongoing efforts to engage with Members on and to facilitate the transparent and inclusive development of EU climate policy, the EU would like to inform Members that on 1 July 2025, the EU published the call for evidence and public consultation on the extension of the scope of the carbon border adjustment mechanism to downstream products and anti-circumvention measures and rules for the electricity sector. The consultation will run for eight weeks between 1 July 2025 until 26 August 2025 and comments can be submitted under the links below. The conclusions drawn from the consultation will support a legislative proposal by the European Commission.

2._        A call for evidence aims to inform stakeholders on the Commission's future legislative work so that they can provide feedback on the Commission's understanding of the problem and possible solutions and give any relevant information they may have, including on possible impacts of the different options.  The EU is sharing this Communication with Members of the Committee on Trade and Environment in order to ensure that the final CBAM design is fully informed by the views of stakeholders, including trading partners and their respective industries.

3._        To help prevent carbon leakage, Art. 30 of the CBAM Regulation (Regulation (EU) 2023/956) sets out a possible extension of CBAM's scope to products downstream from goods currently in scope and have a significant share of at least one of the CBAM sectors. The recently adopted Commission's Steel and Metals Action Plan (March 2025) further highlights these aspects.

4._        Firstly, carbon leakage in CBAM-covered goods could shift further downstream in the value chain, i.e., to goods that use CBAM-covered goods as inputs. This could arise if companies downstream to CBAM goods that currently produce in the EU move their manufacturing and processing operations to non-EU countries with laxer climate policies or if end consumers purchase downstream products that are less expensive because of less stringent climate policies in the producing country. In addition, companies may try to avoid CBAM by making enough minor transformations to the CBAM basic goods outside the EU to not be subject to CBAM anymore, and then importing the slightly altered downstream products without having to pay the CBAM financial adjustment at the EU border.

5._        The selection of downstream products to be added to the CBAM scope would rely on analogous criteria to those that guided the initial scope of CBAM, namely the risk of carbon leakage which depends on the tradability and the carbon cost, the relevance of embedded emissions and the technical feasibility.

6._        Secondly, there is a risk of circumvention of CBAM arising from practices aiming to reduce the amount of financial liabilities associated with the embedded emissions.

7._        Furthermore, in light of the lessons learned in the transitional period, the rules for electricity have been identified as challenging to implement due to the specific characteristics and complexity of electricity as a good. Currently, the default values applied are based on the emission factor of fossil electricity production. Alternatively, actual emissions can be reported.

8._        This consultation aims at gathering the opinions of all stakeholders on these issues with a view to an amendment of the CBAM Regulation. The consultation link and the dedicated survey can be accessed through the following lings:

a._         Call for evidence

b._         Public consultation

9._        CBAM is being introduced gradually: from October 2023 until the end of 2025 only the reporting obligations under the Regulation will apply. The definitive period will start as of 1 January 2026 with a gradual introduction of the CBAM charge until 2034 when the CBAM will be fully operational.

10._      The EU will continue to inform Members in a timely manner about any upcoming development regarding the implementation of the EU's Carbon Border Adjustment Mechanism.

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