TL;DR

The European Union has taken another significant step toward expanding the Carbon Border Adjustment Mechanism (CBAM), its carbon import tax regime. EU member states have now backed proposals that would extend CBAM beyond basic raw materials such as steel and aluminum to hundreds of downstream and finished products, including machinery, appliances, tools, and other manufactured goods. The move is intended to prevent companies from avoiding CBAM costs by importing finished products rather than the carbon-intensive materials used to make them. If adopted, the expanded scope is expected to take effect beginning in 2028.

The Next Phase of CBAM

The Carbon Border Adjustment Mechanism was created to address "carbon leakage"—the risk that production shifts from Europe to countries with less stringent climate regulations. CBAM currently applies to imports of carbon-intensive products such as steel, aluminum, cement, fertilizers, hydrogen, and electricity, requiring importers to account for the embedded emissions associated with those goods.

As the system entered its definitive phase in 2026, policymakers quickly identified a potential loophole. While raw materials may be subject to CBAM, manufacturers could potentially avoid the mechanism by importing finished products that contain those same materials. For example, rather than importing steel directly, a company could import steel-intensive machinery or equipment manufactured outside the EU.

To address this concern, the European Commission proposed expanding CBAM to downstream products, and the Council of the European Union has now endorsed that direction.

What Products Could Be Added?

Under the current proposal, CBAM could be extended to nearly 400 additional product categories containing significant amounts of steel or aluminum. Examples discussed by policymakers include:

• Washing machines

• Forklifts

• Garden tools

• Industrial equipment

• Construction products

• Various manufactured metal goods

The final list remains subject to negotiations with the European Parliament, but the scope is expected to be substantially broader than the current regime.

Why the EU Is Expanding the Scope

European officials argue that expanding CBAM is necessary to preserve the effectiveness of the EU's climate policies. As European manufacturers face increasing carbon costs through the EU Emissions Trading System (EU ETS), policymakers want to ensure that imports are subject to comparable carbon pricing regardless of how far along the value chain they enter the market.

The expansion is also intended to prevent circumvention. Without broader coverage, manufacturers could simply move portions of production outside the EU or import more finished products from jurisdictions with weaker climate regulations, undermining both emissions reduction goals and the competitiveness of European industry.

What Happens Next?

The Council's position represents an important milestone, but the proposal is not yet final. The European Parliament and the Council must negotiate and agree on the final legislative text before the expanded requirements become law. Current discussions suggest implementation could begin as early as 2028.

Businesses that export manufactured goods into the EU should monitor these negotiations closely, particularly if their products contain significant quantities of steel or aluminum. Companies that have historically viewed CBAM as a concern only for commodity producers may soon find themselves within scope.

What This Means for Companies

For multinational manufacturers and importers, the expansion signals that CBAM is evolving from a narrow carbon compliance requirement into a broader trade and supply chain issue. Companies may need to:

• Evaluate whether products sold into the EU contain CBAM-covered materials.

• Improve emissions data collection across supply chains.

• Assess potential cost impacts from embedded carbon charges.

• Review sourcing strategies and supplier engagement programs.

• Prepare for increased reporting and verification requirements.

Organizations with global manufacturing footprints, particularly those producing metal-intensive finished goods, should begin evaluating potential exposure now, even though final rules remain under negotiation. The direction of travel from EU policymakers is clear: CBAM is likely to cover a much larger portion of the industrial value chain in the years ahead.