EU Proposes Expanding CBAM to 180 Downstream Steel and Aluminium Products

The European Commission has proposed expanding the Carbon Border Adjustment Mechanism (CBAM) to include 180 steel and aluminium-intensive downstream products such as machinery, vehicle components and domestic appliances, to prevent carbon leakage through the shift of downstream manufacturing to countries with weaker climate policies. CBAM formally entered into force in 2026 after a two-year transitional phase.

CBAM was established to equalise the carbon cost faced by EU producers under the EU Emissions Trading System with that of imported goods, requiring importers to purchase CBAM certificates to cover the difference. The new proposal adds 180 downstream products assessed as having a high carbon leakage risk and high steel or aluminium content, with 94% being industrial supply chain products and 6% household goods. The Commission selected goods based on assessed carbon leakage risk, climate relevance and technical feasibility. The update also introduces enhanced reporting requirements for better traceability of CBAM goods, new anti-circumvention measures and authority for the Commission to address evidence-based abuses including emission intensity misdeclarations.

The expansion of CBAM to downstream products has significant implications for Indian steel and aluminium exporters and manufacturers of steel-intensive goods. India is among the largest exporters of steel products to Europe, and CBAM compliance requires importers to report and pay for the carbon embedded in those goods. With the mechanism now extending to downstream fabricated products and components, Indian manufacturers of automotive parts, construction equipment and machinery exported to the EU will face new carbon cost obligations that depend directly on the emissions intensity of their production processes and the availability of decarbonised upstream inputs.

The Commission's proposal also includes a temporary fund to support EU producers of CBAM goods vulnerable to carbon leakage risk, with eligibility conditional on demonstrating decarbonisation efforts. The proposed changes build on lessons from CBAM's transitional phase, during which industry feedback identified loopholes and circumvention risks in the current scope. The proposal now requires formal legislative process before entering into force. As CBAM becomes fully operational and expands in scope, carbon-intensive exporters globally face a financial incentive to accelerate decarbonisation of production to avoid accumulating compliance costs at EU borders.

Key figure — 180 new downstream products added to CBAM scope