The Council of the European Union has agreed its negotiating position on a proposal to strengthen the EU’s Carbon Border Adjustment Mechanism (CBAM), marking another significant step in the bloc’s efforts to prevent carbon leakage and support global decarbonisation.
The updated framework would expand CBAM’s scope to additional products, introduce stronger anti-circumvention provisions, and establish clearer rules for exceptional circumstances. The Council’s agreement paves the way for interinstitutional negotiations with the European Parliament later this year.
Council Signals Commitment to Stronger Carbon Border Rules
Commenting on the agreement, Makis Keravnos, Minister of Finance of the Republic of Cyprus, stated:
“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.”
The Council’s position reflects growing concerns that the existing CBAM framework could leave certain sectors exposed to carbon leakage risks through indirect channels.
What Is CBAM?
The Carbon Border Adjustment Mechanism is the European Union’s flagship instrument designed to ensure that imported goods bear a carbon cost equivalent to that faced by EU producers under the EU Emissions Trading System (ETS).
Following its transitional phase, CBAM became fully operational on 1 January 2026. It currently applies to imports in several carbon-intensive sectors, including:
- Iron and steel;
- Cement;
- Fertilisers;
- Aluminium;
- Electricity; and
- Hydrogen.
By pricing embedded carbon emissions in imports, the mechanism seeks to encourage cleaner production practices outside the EU while maintaining a level playing field for European industry.
Extending CBAM to Downstream Products
One of the most significant elements of the Council’s position is the proposed extension of CBAM beyond basic raw materials.
Under the current framework, CBAM focuses primarily on upstream products. However, this creates a risk that imported finished or semi-finished goods containing significant amounts of CBAM-covered materials could gain a competitive advantage over EU-manufactured equivalents.
The Council therefore supports extending CBAM to selected downstream products incorporating materials such as iron, steel and aluminium.
Importantly, the Council refined the list of products proposed by the European Commission and introduced a requirement for the Commission to conduct annual reviews to assess whether additional downstream products should be included in future.
This dynamic approach aims to ensure that the mechanism remains effective as trade patterns and industrial practices evolve.
Tougher Anti-Circumvention Measures
The Council also broadly endorses the Commission’s proposals aimed at preventing companies from circumventing CBAM obligations.
Key measures include:
- Bringing certain categories of pre-consumer metal scrap within the scope of CBAM;
- Strengthening monitoring mechanisms for high-risk importers;
- Empowering the European Commission to intervene when deceptive reporting practices are detected; and
- Closing loopholes that could undermine the environmental objectives of the mechanism.
These measures are intended to preserve the integrity of CBAM and ensure that emissions are not merely shifted elsewhere through technical adjustments in supply chains.
Exceptional Circumstances and Temporary Exemptions
Recognising that extraordinary market conditions can arise, the Commission’s proposal included a mechanism allowing temporary exemptions from CBAM requirements in cases of serious and unforeseen circumstances.
The Council’s position provides greater clarity on how this safeguard mechanism would operate.
Under the revised approach:
- Temporary exemptions would only apply under clearly defined circumstances;
- The Commission’s discretion would be more narrowly framed;
- Exemptions would require objective justification; and
- Particular attention would be given to situations involving severe price increases affecting the EU market.
The objective is to balance market stability with the need to preserve the environmental effectiveness of CBAM.
Why Strengthening CBAM Matters
The concept underpinning CBAM addresses the problem of “carbon leakage.”
EU manufacturers participating in the Emissions Trading System must acquire emissions allowances, increasing production costs in carbon-intensive sectors. Without equivalent measures for imports, production could relocate to jurisdictions with weaker climate policies, potentially increasing global emissions rather than reducing them.
By imposing a carbon cost on imports, CBAM seeks to:
- Protect the competitiveness of EU industry;
- Prevent the relocation of emissions-intensive production;
- Encourage international trading partners to adopt cleaner production methods; and
- Support the EU’s broader climate neutrality objectives.
As the mechanism matures, policymakers increasingly view expanding its scope and reinforcing compliance measures as essential to achieving these goals.
Next Steps
The Council’s agreement establishes its negotiating mandate ahead of discussions with the European Parliament.
Formal trilogue negotiations are expected to begin once Parliament adopts its own position. EU institutions aim to reach a final agreement before the end of 2026.
If adopted, the strengthened framework would represent another major evolution of one of the world’s most closely watched climate-related trade measures.
Businesses involved in importing CBAM-covered products into the European Union should closely monitor legislative developments and assess whether future expansions could affect their supply chains and compliance obligations.