MEPs strengthen the EU’s carbon border adjustment mechanism and close loopholes  

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• Long list of downstream products added to carbon border adjustment mechanism (CBAM)  
• Tougher anti-circumvention rules to prevent abuse  
• A temporary decarbonisation fund to protect EU firms in export markets  

Environment Committee MEPs have backed extending the EU’s carbon border adjustment mechanism to downstream goods and setting up a fund to support industry’s low-carbon transition.

The Committee on the Environment, Climate and Food Safety adopted its position on proposed changes to the CBAM by 56 to 11, with 12 abstentions.

The MEPs agree with the Commission’s proposal to extend the scope of CBAM beyond basic materials to a long list of downstream products – finished steel and aluminium goods such as fasteners, wire, springs and household articles – but insist it must be based on transparent, quantitative methodologies. They also added an exemption for electricity flows from non-EU countries used by grid operators to keep networks stable.

Closing loopholes

On anti-circumvention rules, the MEPs clarified that the practice of “slightly modifying” goods must also cover slight processing and tightened the rule so it targets only arrangements set up purely to dodge CBAM, and not normal business decisions to lower a company’s costs.

They also empowered the Commission to apply the true country of origin’s default values where a pattern of circumvention is found. They deleted the Commission’s proposed safeguard that would have allowed goods to be removed from the scope in the event of price shocks.

The committee also wants new rules for online sales to close an online imports loophole. It recommends a single weight-based limit be applied to a seller’s shipments as a whole, rather than parcel by parcel, with new reporting duties, and retroactive liability for shipments that are split to stay under the threshold.

Finally, the MEPs propose simplified reporting for least-developed countries and a technical assistance framework, but removed the Commission’s option to count Paris Agreement Article 6 carbon credits against CBAM obligations, since this issue is likely to be discussed in the context of the upcoming revision of the EU emissions trading system (ETS).

Temporary decarbonisation fund

The Environment Committee also adopted their position on the related temporary decarbonisation fund (TDF) to protect EU producers on export markets, by 59 votes to 16, with 6 abstentions.

The MEPs want financial support from the TDF to run from 2027 to 2029 and not only from 2028 as proposed by the Commission. As fertilisers are a strategic input for food security, they also want to open the fund to fertiliser producers and downstream users facing higher carbon-related input costs, with products such as urea, ammonium nitrate and ammonium sulphate added to the list of eligible goods.

Finally, all downstream operators – firms that use CBAM-covered goods as inputs in their production – should be eligible for support from the fund, while leftover revenue could be redirected to the EU’s international climate finance commitments under the Paris Agreement instead of being returned to member states, as the Commission proposed.

Quotes

CBAM rapporteur Mohammed Chahim (S&D, NL) said: “This compromise makes the CBAM stronger, fairer and more resilient. We have closed important loopholes, strengthened enforcement against circumvention, and expanded the mechanism’s scope where it matters most. It is a balanced package that protects European industry as it decarbonises while safeguarding the environmental integrity of the mechanism.”

Rapporteur for the temporary decarbonisation fund Pascal Canfin (Renew, FR) said: “Today we have taken a big step towards making Europe a safe place for investment in decarbonisation: we are broadening product coverage to enhance the level playing field and we are setting out stronger anti-circumvention rules, notably against resource shuffling from China. We are also offering a more robust solution for our farmers hit by fertiliser costs, and an export scheme to protect our companies on export markets where their competitors do not pay a carbon price.”

Next steps

Parliament is scheduled to adopt its mandate for negotiations with EU member states on the final shape of the bill during the September plenary session.

Background

The EU’s carbon border adjustment mechanism is the EU’s tool to equalise the price of carbon paid for EU products operating under the ETS with that of imported goods, to reduce the risk of carbon leakage and to encourage greater climate ambition in non-EU countries. In 2025, Parliament adopted simplification measures to exempt 90% of importers from CBAM rules while still maintaining climate ambition, as 99% of CO2 emissions are still covered.