The European Union is preparing a massive expansion of its Carbon Border Adjustment Mechanism (CBAM) that would see the controversial "carbon tax" extend far beyond raw materials. According to leaked Commission drafts, the bloc plans to target finished downstream products—including car parts, household appliances, and industrial tools—in a bid to close loopholes and protect domestic manufacturers.
Currently, CBAM applies primarily to raw industrial inputs: steel, aluminum, cement, fertilizer, electricity, and hydrogen. Importers of these goods must report embedded emissions today and will begin paying financial levies in 2026. However, European industries have long warned of a fatal flaw in this design: it taxes the raw steel used to make a car door in Germany, but effectively exempts a finished car door imported from China.
The "Leakage" Problem: Why Finished Goods are Next
The proposed expansion addresses this exact "carbon leakage" risk. Under the current rules, foreign manufacturers have a perverse incentive to process materials outside the EU to avoid the tax. For example, instead of exporting raw aluminum (taxed) to Europe, a factory in Asia could manufacture finished window frames (untaxed) and ship those instead, undercutting EU producers who face high carbon costs on their inputs.
The new draft proposal aims to plug this gap by extending CBAM to roughly 180 additional downstream goods. This list reportedly includes:
- Automotive components: Bumpers, doors, and chassis parts.
- Household appliances: Washing machines, refrigerators, and ovens.
- Industrial equipment: Farming machinery, power transformers, and construction tools.
Timeline: What to Expect
While the original CBAM levy on raw materials begins its financial phase on January 1, 2026, the expansion to finished goods is currently slated for a later rollout, likely around 2028.
- 2026: Financial obligations begin for raw materials (steel, cement, etc.).
- Late 2025/Early 2026: The Commission is expected to publish a formal legislative proposal for the scope extension.
- 2028: Estimated inclusion of new finished goods like appliances and auto parts.
This move transforms CBAM from a niche industrial policy into a broad-based trade tariff that will hit consumer markets. For the automotive sector, which consumes 26% of Europe's steel, this is a game-changer.
If implemented, global suppliers of car parts and appliances will need to meticulously track the "embedded emissions" of every screw, panel, and circuit board they ship to Europe. Suppliers in countries with carbon-intensive grids (like China or India) will face a stark choice: decarbonize their production lines or face a steep tax that erodes their price competitiveness against EU-based rivals.
17 Dec, 2025
