EU's fully operational CBAM to include downstream products and expand scope from 2026

The European Union will move the Carbon Border Adjustment Mechanism (CBAM) from its transitional reporting phase to a fully operational, financially binding regime on 1 January 2026, obliging importers to purchase and surrender CBAM certificates for embedded emissions in covered goods, according to a JD Supra summary of the Commission’s package. The Commission published eight Implementing Acts this week setting out default values, verification principles, registry rules, authorisation procedures and the pricing framework that will underpin the new obligations.

What changes on 1 January 2026
Importers bringing goods such as steel, aluminium, cement, fertilisers, electricity and hydrogen into the EU will no longer only report embedded emissions; they must also acquire and surrender certificates corresponding to those emissions. The move aligns CBAM’s definitive regime with the phase‑out of free allowances under the EU Emissions Trading System (ETS), a linkage highlighted in the International Energy Agency’s overview of the mechanism.

Scope expansion proposed for downstream products
In parallel with the Implementing Acts, the Commission proposed on 17 December 2025 a regulation to broaden CBAM’s reach beyond the original six upstream precursors to include 180 downstream finished and semi‑finished products with high steel or aluminium content, according to the Commission’s announcement summarised by JD Supra and by the Commission itself. The Commission says these products were selected because they combine a high risk of carbon leakage with a high share of steel and/or aluminium (on average 79% by content). Examples cited include motor vehicles for the transport of goods, diesel vehicle engines and components (chassis, gear boxes, suspension systems), industrial robots, household washing machines, refrigerators, sawing machines, certain metal furniture, prefabricated buildings and various elevator and conveyor equipment. The proposed extension would treat consumer steel and aluminium scrap as CBAM precursors while excluding post‑consumer scrap to protect circularity.

Timing and how emissions will be attributed
The Commission proposes to apply the downstream expansion from 2028 to allow time for authorities and traders to implement product‑level rules, publish default values and adapt IT and customs systems. For downstream assemblies, CBAM would attribute emissions only to the precursor materials (steel and aluminium) used in the product, not to fabrication or assembly processes; where verified actuals are impracticable for complex assemblies, the Commission will publish default values that apply without mark‑ups. A 50‑tonne de minimis threshold remains in place to exempt small flows: the Commission and the EU institutions expect this threshold to exclude about 90% of importers while retaining coverage of roughly 99% of embedded emissions, a simplification repeatedly negotiated and reflected in recent EU legislation.

Regulatory context and simplification measures
The expansion and the operational rules come against a backdrop of political agreement to simplify CBAM’s compliance burden. The Council presidency and European Parliament negotiators reached a provisional agreement in June 2025 to simplify and strengthen CBAM, notably by setting the de minimis threshold at 50 tonnes per importer per year; the European Parliament and the Council confirmed that approach in June 2025. Regulation (EU) 2025/2083, which amends the original CBAM Regulation, was adopted on 8 October 2025 and entered into force on 20 October 2025; the regulation codified the de minimis exemption and other simplifications intended to reduce administrative burdens, particularly for SMEs, while keeping coverage of the vast majority of embedded emissions, according to a PwC summary and Council press releases.

Anti‑circumvention and safeguards
The Commission’s proposed widening to downstream goods includes additional anti‑circumvention measures to deter misclassification and under‑declaration of emission intensity. Targeted reporting requirements will apply in specified cases, and the Commission would be empowered to require extra documentation where it finds a high risk of abusive practices, limiting the use of declared actual emissions unless supported by proof that producers have not engaged in abuse, the JD Supra summary says.

Compensation, market impact and further reviews
Although industry groups sought an export rebate, the Commission’s proposal does not introduce such a mechanism. Instead, it proposes a temporary decarbonisation fund to reimburse part of the CO₂ costs borne by exporters who will lose free ETS allowances in 2026 and 2027; support would focus on products at particularly high risk of carbon leakage and be tied to demonstrable decarbonisation efforts, according to the Commission’s communication summarised on 17 December 2025. The Commission’s Review Report also signals “Step 2” considerations for later review, including whether to treat indirect emissions, include transport emissions, or extend CBAM to additional sectors such as chemicals, polymers and refinery products. Those elements remain subject to market assessment, feasibility studies and further legislation.

Legal and diplomatic friction
The definitive regime and its expansion are likely to face scrutiny from trading partners. Russia has already initiated a challenge at the World Trade Organization, and the EU‑US Joint Statement of August 2025 signalled that the United States will follow CBAM developments closely. The JD Supra summary notes that non‑EU operators and governments are expected to lobby and, where they judge it appropriate, pursue dispute settlement or bilateral negotiation to influence the final product list or implementation details.

Next steps
The Commission’s proposed scope expansion will proceed under the EU’s ordinary legislative procedure and requires agreement by the European Parliament and the Council. While there is broad political support across member states for the principle of CBAM and its expansion, the precise product list and operational details can be expected to be heavily negotiated. As the obligation for non‑EU operators to acquire CBAM certificates takes effect on 1 January 2026, heightened scrutiny of the regime by trading partners and industry stakeholders is likely in the coming months.