Strengthening the EU carbon border adjustment mechanism and closing loopholes
The European Parliament has backed an extension of the EU’s carbon border adjustment mechanism to cover downstream goods and a fund to support the low-carbon transition.
Plenary adopted its position for negotiations with member states on proposed changes to the CBAM by 464 to 50, with 159 abstentions.
MEPs agree with the Commission’s proposal to extend the scope beyond basic materials to an extensive list of downstream products – finished steel and aluminium goods such as fasteners, wire, springs and household articles – and broadened it further than the Commission proposed. They also added an exemption for electricity flows from non-EU countries used by grid operators to maintain network stability.
Closing loopholes
To stop circumvention of the rules, MEPs are lowering the threshold by which small changes to a particular good would qualify as circumvention of the rules. They also tightened the rule, so it targets only arrangements set up purely to avoid the CBAM, and not normal business decisions to lower a company’s costs. MEPs also want to empower the Commission to apply the true country of origin’s default values where a pattern of circumvention is established.
They rejected the Commission’s proposed safeguard that would have allowed goods to be removed from the scope of the mechanism in the event of price shocks. In its place, MEPs want to add a mechanism to temporarily redirect CBAM revenues from the goods concerned to the affected sectors.
Finally, MEPs are proposing simplified reporting for least-developed countries and a technical assistance framework, but removed the Commission’s option to count Paris Agreement Article 6 carbon credits against CBAM obligations, since this issue is likely to be discussed in the context of the upcoming revision of the EU emissions trading system (ETS).
Temporary decarbonisation fund
Parliament also adopted its position on the related temporary decarbonisation fund (TDF) to protect EU producers on export markets, by 433 votes to 97, with 146 abstentions.
MEPs want financial support from the TDF to run from 2027 to 2029, rather than only from 2028 as proposed by the Commission. As fertilisers are a strategic input for food security, they also want to open the fund to fertiliser producers and downstream users facing higher carbon-related input costs, with products such as urea, ammonium nitrate and ammonium sulphate added to the list of eligible goods.
All downstream operators – firms that use CBAM-covered goods as inputs in their production – should be eligible for support from the fund, according to MEPs, while leftover revenue could be redirected to the EU’s international climate finance commitments under the Paris Agreement instead of being returned to member states, as the Commission proposed.
Quotes
CBAM rapporteur Mohammed Chahim (S&D, NL) said: “This compromise makes the CBAM stronger, fairer and more resilient. We have closed important loopholes, strengthened enforcement against circumvention, and expanded the mechanism’s scope where it matters most. It is a balanced package that protects European industry as it decarbonises while safeguarding the environmental integrity of the mechanism.”
Rapporteur for the temporary decarbonisation fund Pascal Canfin (Renew, FR) said: “Today we have taken a big step towards making Europe a safe place for investment in decarbonisation: we are broadening product coverage to enhance the level playing field and we are setting out stronger anti-circumvention rules, notably against resource shuffling from China. We are also offering a more robust solution for farmers hit by fertiliser costs, and an export scheme to protect European companies on export markets where their competitors do not pay a carbon price.”
Next steps
Parliament is now ready to start negotiations with EU member states on the final shape of the bill.
Background
The EU’s carbon border adjustment mechanism is the EU’s tool to equalise the price of carbon paid for EU products operating under the ETS with that of imported goods, to reduce the risk of carbon leakage and to encourage greater climate ambition in non-EU countries. In 2025, Parliament adopted simplification measures to exempt 90% of importers from CBAM rules while still maintaining climate ambition, as 99% of CO2 emissions are still covered.
