On 12 June 2026, the EU Council reached a general approach on a proposal to amend the Carbon Border Adjustment Mechanism (CBAM), marking a significant step in the evolution of the EU’s carbon leakage framework
The proposed revision expands CBAM’s scope to include selected downstream products and introduces new measures to prevent circumvention.
Beyond a technical adjustment to the existing framework, the proposal signals a broader policy shift. The EU is increasingly seeking to address carbon leakage risks not only in primary materials but also across downstream industrial value chains.
The proposal reflects the EU’s broader objective of ensuring that decarbonisation efforts within Europe are not undermined by the relocation of emissions-intensive production outside its borders. As the EU Emissions Trading System (EU ETS) continues to tighten and maritime transport has already been incorporated into the scheme, policymakers are increasingly focused on strengthening carbon pricing across value chains.
When CBAM was implemented, its scope was intentionally limited to a number of highly carbon-intensive sectors most exposed to carbon leakage risks. However, concerns have grown that emissions-intensive production could shift further down the value chain, creating competitive distortions for European manufacturers.
The Council’s proposal, therefore, seeks to extend CBAM coverage to selected downstream goods, particularly steel- and aluminium-intensive products. According to the draft regulation, these sectors have been prioritised due to their high exposure to carbon leakage, significant import volumes, and the technical feasibility of calculating embedded emissions.
The proposal reflects the growing concern that carbon leakage risks may increasingly emerge in downstream sectors as European climate policies become more stringent.
This move signals the EU’s intention to extend carbon accountability across industrial value chains, ensuring that climate-related costs are reflected more consistently throughout the supply chain.
As free allocation under the EU ETS gradually declines and carbon costs rise, the risk may shift from upstream production to downstream manufacturing. Extending CBAM to additional products is therefore viewed as necessary to preserve the effectiveness of EU climate policies and maintain a level playing field for European industry.
The proposal also establishes a framework for future assessments, allowing the European Commission to evaluate whether additional downstream goods should be incorporated into CBAM in subsequent revisions.
One of the most notable elements of the proposal is its strong emphasis on preventing circumvention.
The Council specifically addresses the risk of “resource shuffling”, a practice whereby producers with multiple facilities export their lowest-emission products to the EU while continuing carbon-intensive production elsewhere. Such arrangements may create the appearance of lower-carbon imports without delivering genuine global emissions reductions.
To address this concern, the proposal empowers the Commission to identify sectors and origins at high risk of circumvention and adopt implementing measures where necessary. Factors considered may include differences in climate ambition across jurisdictions, variations in emission intensity, import volumes, and economic incentives to redirect lower-carbon production toward the EU market.
This represents a significant evolution of CBAM from a border carbon pricing mechanism into a broader instrument designed to preserve environmental integrity and market fairness.
For importers and industrial companies operating within CBAM-covered sectors, the proposed expansion could introduce additional reporting and compliance obligations.
Businesses importing steel- and aluminium-intensive downstream goods may need to collect more detailed emissions data from suppliers and strengthen supply chain transparency. Companies will also need to monitor future guidance on embedded emissions calculations, verification requirements, and potential anti-circumvention controls.
The proposal further reinforces the importance of supplier engagement and decarbonisation strategies across international value chains, as carbon performance increasingly becomes a competitive factor in accessing the European market.
The Council’s agreement represents an important milestone, but the legislative process is not yet complete. Negotiations with the European Parliament will determine the final shape of the regulation before adoption.
Nevertheless, the direction of travel is clear: the EU is moving towards a more comprehensive carbon pricing framework that extends beyond primary materials, strengthens carbon leakage protection, and increases scrutiny of supply chain emissions.
For companies affected by CBAM, now is the time to assess exposure, engage suppliers, and prepare for a future in which carbon transparency becomes an increasingly important requirement for doing business in Europe.
While the final scope of the expanded CBAM will depend on negotiations with the European Parliament, businesses should already start assessing potential exposure across their value chains. Early preparation will be essential for managing future reporting obligations, carbon cost impacts, and supply chain transparency requirements.