MEPs strengthen the EU’s carbon border adjustment mechanism and close legal loopholes

The Committee on the Environment, Climate Change and Food Security adopted its position on the proposed amendments to the CBAM by 56 votes in favour, 11 against and 12 abstentions.

MEPs agree with the Commission’s proposal to extend the scope of the CBAM beyond raw materials to a long list of derived products — finished steel and aluminium products, such as fasteners, wire, springs and household goods — but insist that it must be based on transparent and quantitative methodologies. They also added an exemption for electricity flows from non-EU countries used by network operators to maintain grid stability.

Closing legal loopholes

With regard to the rules against circumvention of measures, MEPs clarified that the practice of ‘slightly modifying’ products must also cover light processing, and tightened the rule so that it targets only agreements entered into solely to circumvent measures against commodity manipulation, rather than normal business decisions aimed at reducing a company’s costs.

They also empowered the Commission to apply default values for the country of actual origin where a pattern of circumvention is detected. They removed the safeguard proposed by the Commission which would have allowed goods to be excluded from the scope of the measures in the event of drastic price fluctuations.

The committee also calls for new rules on online sales to close a legal loophole regarding internet imports. It recommends applying a single weight-based threshold to all shipments from a seller, rather than on a parcel-by-parcel basis, with new declaration requirements and retroactive liability for shipments that are split to remain below the threshold.

Finally, MEPs propose a simplified reporting system for least-developed countries and a framework for technical assistance, but they remove the Commission’s option to count carbon credits under Article 6 of the Paris Agreement against CBAM obligations, as this issue is likely to be discussed in the context of the forthcoming review of the EU Emissions Trading Scheme (ETS).

Temporary Decarbonisation Fund

The Environment Committee also adopted its position on the related Temporary Decarbonisation Fund (TDF), designed to protect EU producers in export markets, by 59 votes in favour, 16 against and 6 abstentions.

MEPs want financial support from the Technology Development Fund (TDF) to run from 2027 to 2029, rather than just from 2028 as proposed by the Commission. Given that fertilisers are a strategic input for food security, they also want the fund to be extended to fertiliser producers and end-users facing higher carbon-related input costs, including products such as urea, ammonium nitrate and ammonium sulphate on the list of eligible goods.

Finally, all operators in the value chain — companies that use goods covered by the CBAM as inputs in their production — should be eligible for support from the fund, whilst any surplus revenue could be redirected towards the EU’s international climate finance commitments under the Paris Agreement, rather than being returned to Member States, as proposed by the Commission.

Quotes

The CBAM rapporteur,Mohammed Chahim(S&D, Netherlands), stated: “This compromise makes the CBAM stronger, fairer and more resilient. We have closed significant loopholes, strengthened enforcement against circumvention and broadened the scope of the mechanism in key areas. This is a balanced package that protects European industry as it decarbonises, whilst safeguarding the environmental integrity of the mechanism.”

The rapporteur for the temporary decarbonisation fund,Pascal Canfin(Renew, FR), said: “Today we have taken a major step towards making Europe a safe place for investment in decarbonisation: we are expanding the scope of covered products to improve the level playing field and are establishing stricter rules against circumvention, in particular against the channelling of resources from China. We are also offering a more robust solution for our farmers affected by rising fertiliser costs and an export plan to protect our businesses in export markets where their competitors do not pay a carbon price.”

Next steps

Parliament is expected to approve its mandate to negotiate the final version of the draft legislation with EU Member States during the September plenary session.

Background

The EU’s Carbon Border Adjustment Mechanismis the tool used by the EU to align the carbon price paid for EU products operating under the EU ETS with that of imported goods, with the aim of reducing the risk ofcarbon leakageand encouraging greater climate ambition in non-EU countries. In 2025, the Parliamentadopted simplification measures to exempt 90 per cent of importers from the rules of the Carbon Border Adjustment Mechanism, whilst maintaining climate ambition, as 99 per cent of CO₂ emissions remain covered.

More information: European Parliament.