The Environment Committee (ENVI) of the European Parliament agreed to broaden the scope of the European Union's Carbon Border Adjustment Mechanism (CBAM), a next key development in the Union's climate policy and the fight against unfair competition. The initiative, which has come closer to formal negotiations, aims to expand the boundaries of EU carbon tax, carbon leakage, European Parliament framework and the CBAM, the Carbon Border Adjustment Mechanism, and introduce many more downstream products under the carbon import levy.

The committee's recommendations are mostly in line with those of the European Commission, which proposed the tax in December 2025, with a number of new measures to prevent companies from using loopholes to avoid the tax. The ENVI position will be accepted by the full Parliament during its September plenary session, which will give Parliament the negotiating mandate to discuss with the European Commission and the Council of the European Union.

Why the EU Wants to Expand CBAM

The EU has introduced the Carbon Border Adjustment Mechanism in 2023 and it will be fully implemented from January 1, 2026. The policy was aimed at tackling “carbon leakage” whereby companies shift production to countries with more relaxed climate policies, making a product cheaper to produce in the other country while increasing global carbon emissions.

The overall goal of CBAM is to provide a level playing field, by ensuring imported goods are subjected to a carbon cost akin to goods produced in the EU under the Emissions Trading System (ETS). The importers must have certificates for CBAM that cover the price difference between the carbon costs the importers will have to pay in the exporting country and the carbon costs that the EU manufacturers will pay under the ETS.

Although the mechanism focused on high-emission raw materials like steel, cement, aluminium, electricity, hydrogen and fertilizers, the European Commission decided at the end of the transition phase that other products should be included to avoid that companies just move production to the next link in the value chain.

Another tax is to come on More Downstream Products.

The Commission's plan would include approximately 180 products downstream that include large quantities of steel or aluminum. These include machinery, fabricated metal products, vehicle components, household appliances and construction equipment.

Lawmakers are hoping if it can be expanded to these products, it will help prevent companies from avoiding carbon costs by importing finished or semi-finished products, instead of raw materials already undergoing the CBAM process. Such a step is likely to boost the competitiveness for European manufacturers that are investing in cleaner production technologies and at the same time respecting the strict climate regulations.

The Council of the European Union has already given its backing to the expansion of the product scope and the ENVI Committee has now confirmed the trend, adding some safeguards.

Improvements to be made to existing measures to prevent circumvention

The Environment Committee also expanded the range of products subject to the carbon border tax, and put in place stricter anti-circumvention measures to stop companies from finding ways to evade the tax.

The current CBAM rules already apply to products that are only slightly modified to avoid being covered by the list of covered goods. The committee wishes to do more than this, however, and stipulate that these rules extend to slight processing activities that can be done on purpose to evade CBAM. Meanwhile, lawmakers noted the regulations are to be enforced only if specific changes are intended to get around the restrictions, but not simply in an unfair way because of ordinary business production decisions.

The committee also has recommended steps to plug the new loophole in the online imports. The new rules are aimed at preventing products being sold via digital platforms meeting the CBAM requirements only by the way they reach the European market.

Another idea is to give the European Commission the possibility of setting the default carbon emission level on the basis of the actual country of origin if it detects systematic attempts to evade the mechanism.

The Price Shock Provisions have been updated.The Price Shock Provisions have been updated.

Further, the Environment Committee made some amendments to the other part of the Commission's proposal regarding market disruptions.

Instead of temporarily exempting some products from CBAM during price fluctuations, parliamentarians suggested diverting the revenue of CBAM to industries that are impacted by price hikes. This method is aimed to keep the environment in the mechanism intact and provide financial support to the economically vulnerable sectors for a short period.

The committee further suggested to simplify reporting requirements for least developed countries, bearing in mind their administrative difficulties in meeting the new reporting system.

The Carbon Credits Proposal has been removed.

The committee has eliminated the Commission's suggestion of permitting CBAM compliance by using the carbon credits available under Article 6 of the Paris Agreement.

The job of international carbon credits should be tackled at the next review of the EU Emissions Trading System, according to lawmakers. This is a consequence of the concerns that granting such credits in CBAM could detract from the credibility and effectiveness of the carbon price system.

Temporary Decarbonisation Fund Also Expanded

In addition to CBAM, the legislators also adopted amendments to the draft Temporary Decarbonisation Fund (TDF) for assisting EU industries in adapting to the higher carbon pricing.

The committee suggested going beyond the Commission's initial proposal by incorporating fertilizer producers and industries that are further down the chain that would be impacted by increased input costs due to carbon pricing. Products like urea, ammonium nitrate and ammonium sulphate would be eligible for support.

In addition, the committee recommended that the time period in the fund be expanded from 2028 to 2027 to 2029.

Next Steps

In its next plenary session in September, the European Parliament will consider both proposals for the new CBAM and the Temporary Decarbonisation Fund. Once approved, the negotiations with the European Commission and the Council will commence to complete the legislation.

Speaking about the committee's decision, CBAM rapporteur Mohammed Chahim said that the updated package fills in major loopholes, bolsters against circumvention and extends the mechanism in the places where it is needed the most. The proposal is a balanced measure that strikes the right balance between safeguarding European industry on its path to decarbonisation and maintaining the environmental integrity of the Carbon Border Adjustment Mechanism, he said.