EU Proposes to Expand Carbon Border Levy to More Products

The European Commission has unveiled draft proposals to widen the Carbon Border Adjustment Mechanism (CBAM) - the EU’s carbon border levy - to cover a broader range of imported goods, including car parts, refrigerators, washing machines, construction materials and heavy machinery. The expansion aims to prevent carbon leakage, where manufacturers might relocate production to countries with weaker climate regulations to avoid paying costs tied to emissions.

When the CBAM starts imposing charges in January, it will initially target emissions embedded in steel, aluminium, cement and fertilisers. The planned expansion would bring downstream products - those manufactured using significant amounts of carbon-intensive materials - into the scope of the levy. By subjecting these imports to carbon costs, the EU seeks to level the competitive field for domestic industries that already face stringent climate policies.

The draft also proposes strengthening enforcement by ensuring that imports are accurately reported and billed for their carbon footprint. Where foreign producers under-report emissions data, the EU may use “default” emissions values that could result in higher carbon fees. This is intended to deter attempts to circumvent the levy while incentivising cleaner production practices worldwide.

The EU estimates the carbon levy could generate billions in revenue by 2030, part of which may be allocated to support climate action or help industries reduce their carbon footprint. However, the details are still subject to change as the draft progresses toward formal publication and potential legislative approval.

Expanding CBAM coverage sharpens the embedded-emissions competitive dynamic across additional sectors, which raises the strategic value of low-carbon primary materials produced anywhere in the world. Our supply-chain-and-operations and market-intelligence teams help clients evaluate what CBAM expansion means for sourcing strategy, disclosure narrative and pricing exposure.