The European Commission (EC) has announced that it initiated a public consultation process on the Carbon Border Adjustment Mechanism (CBAM), aiming to close critical loopholes and enhance its effectiveness. The consultation, open until August 26, seeks feedback on extending CBAM to downstream products, introducing additional anti-circumvention measures, and revising electricity emissions accounting rules.
These steps are designed to reduce carbon leakage and improve CBAM’s ability to drive meaningful climate action - both inside and outside the EU.
Key goals of the consultation:
| Area of focus | Objective |
| Downstream Products | Prevent carbon leakage in supply chains |
| Anti-Circumvention | Stop manipulation of product classifications to avoid CBAM charges |
| Electricity Emissions | Reflect decarbonization efforts of non-EU countries more accurately |
The EC is concerned that carbon leakage - where companies move production to countries with laxer carbon rules - may shift to later stages of the supply chain. Without extending CBAM, EU-based manufacturers with lower carbon footprints risk being undercut by carbon-intensive imports. This undermines climate goals and industrial competitiveness.
Another focus is addressing circumvention tactics, such as slight modifications to covered goods to reclassify them as non-CBAM items, routing production through intermediate countries to avoid charges. The EC proposes tighter classification and reporting rules to ensure genuine compliance.
Currently, emissions from imported electricity are calculated using default values based on fossil fuels. However, this fails to recognize actual decarbonization progress in exporting countries. Although importers may opt to report actual emissions, the current requirements are complex and sometimes unworkable, involving power purchase agreements, capacity nominations, grid congestion metrics. These conditions may inadvertently discourage decarbonization in non-EU regions by penalizing clean electricity producers who cannot meet the rigid criteria.