The Carbon Border Adjustment Mechanism (CBAM) aims to prevent the European Union’s climate efforts from being undermined by carbon leakage. Carbon leakage occurs when EU‑based companies relocate production to third countries with less stringent climate policies, or when carbon‑intensive products produced outside the EU are imported at lower cost. Both developments would counteract the objective of reducing global CO₂ emissions.
CBAM addresses this risk by applying a carbon price to certain imported products, reflecting their embedded greenhouse gas emissions. The mechanism currently applies to the following sectors: aluminium, cement, electricity, fertilisers, hydrogen, and iron and steel. In the updated regulation, the scope is expanded to include selected downstream products derived from aluminium and steel.
In addition, the proposal seeks to strengthen anti‑circumvention measures. For specific products from certain countries, importers may be required to provide additional information on the products’ emission intensity, and standard emission values may be applied where reliable data are lacking.
Finally, the regulation proposes the establishment of a temporary Decarbonisation Fund for a period of two years. This fund is intended to mitigate the increased risk of carbon leakage resulting from the gradual phase‑out of free allowances under the EU Emissions Trading System (EU ETS).