Commission strengthens the Border Carbon Adjustment Mechanism

The Commission proposed measures to close loopholes to prevent circumvention and strengthen the effectiveness of the EU’s Carbon Financial Mechanism (CBM), in response to comments received from industry. From 1 January 2028, the scope of the CBFF will be extended to include certain steel- and aluminium-intensive downstream products. The Commission also proposes measures to close existing loopholes to prevent circumvention. In response to industry demands, a temporary support scheme is being introduced to protect EU producers vulnerable to carbon leakage, rewarding the cleanest companies globally and promoting a fair and competitive environment.

The 17 December proposals also take into account concerns raised by trusted international partners, who will benefit from some simplifications and flexibility mechanisms. The concept of equivalence in carbon tax and price deduction is introduced, and a new provision is included allowing for negotiated trade facilitation measures, such as mutual recognition of credible accreditation bodies, and new facilities for carbon price deduction equivalence.

This will further strengthen the role of the CCFF in promoting decarbonisation beyond EU borders, facilitated by outreach and technical assistance, which is confirmed in the submitted CCFF review report.

The proposed measures:

Extension to processed products

The EU’s Border Carbon Adjustment Mechanism (CBM) currently focuses on basic materials such as aluminium, cement, electricity and steel.

From 2028, importers will pay a carbon price for emissions linked to these commodities, to achieve a level playing field with EU-produced materials subject to the EU Emissions Trading Scheme (ETS). While this protects against carbon leakage, it increases costs for EU producers who use these materials in downstream products such as washing machines. It could result in production being shifted to countries with weaker climate policies, or EU goods being replaced by more carbon-intensive imports.

To combat this, the Commission plans to extend the scope of the EU ETS to include 180 steel- and aluminium-intensive products, such as machinery and appliances, ensuring that emissions are reduced rather than shifted to other countries.

The vast majority of these downstream products (94%) are products in the industrial supply chain with a high steel and aluminium content (79% on average), used in heavy machinery and specialised equipment, such as base metal fittings, cylinders, industrial radiators or foundry machines. A small part of the downstream products concerned (6 %) are also household goods. An EU producer of these downstream products may face increased costs for steel and aluminium materials used in the production process.

Additional anti-circumvention measures

Based on the lessons learned during the transitional period, the European Commission is reinforcing the strategies to combat the risks of circumvention identified in the “Steel and Metals Action Plan” and through consultations with stakeholders.

By promoting the use of scrap to reduce emissions from energy-intensive products, the Commission is now incorporating pre-consumer aluminium and steel scrap into the MAFC calculations. This ensures a fair carbon price for both EU-made and imported goods.

Key proposals include enhanced reporting requirements to improve the traceability of EU ETS goods and address misreporting of emissions intensity. The Commission acquires authority to address, on the basis of evidence, abusive practices that circumvent the financial responsibilities of the EU ETS, and requires additional evidence where actual values are unreliable, and refers to country-specific values in such specific cases.

Temporary Decarbonisation Fund

The European Commission has launched a fund to temporarily support EU producers of EU ETS goods and mitigate the risks of carbon leakage. This measure addresses the loss of competitiveness in third country markets where EU goods could be substituted by cheaper, higher emitting alternatives, which could increase global emissions.

The Fund will reimburse a share of the EU ETS carbon costs for goods for which the risk of carbon leakage remains, and support will be conditional on demonstrated decarbonisation efforts.

Funding will come from Member States’ contributions, which will constitute 25% of the revenue from sales of EU ETS certificates in 2026 and 2027, while the remaining 75% will be an EU own resource.

MAFC Review Report

The Commission also published a report reviewing the implementation of the MAFC during the transitional period from October 2023 to the end of 2025. The report assesses the MAFC’s contribution to tackling carbon leakage and promoting global carbon pricing, and examines the governance, administration and compliance, as well as the international dimension of the MAFC.

The findings highlight that the CCBM is a key factor in promoting decarbonisation in non-EU countries, in part due to the outreach and technical assistance provided to facilitate implementation. The report also sets out the roadmap for implementation and the necessary accompanying measures to ensure an efficient and effective final regime from 2026.

Background

The EU ETS is a key environmental measure to achieve the EU’s climate objective of climate neutrality by 2050, developed in line with the commitments made under the Paris Agreement. While the ETS sets prices for carbon production within the EU, the EU ETS sets a price for producers selling goods within Europe. The EU ETS, launched in its transitional phase in October 2023, has allowed for a predictable and proportionate transition for EU and non-EU companies. After a two-year transitional period, the financial adjustment of the CCFFM will be phased in from 1 January 2026. This will reflect the phasing out of free allowances under the EU ETS, which will take place until 2034.

For more information: European Commission