The proposal, set for finalisation by end-2025, aims to protect at-risk producers from carbon leakage and ensure equal treatment of all goods within EU trade.

The European Commission has announced plans to introduce a new measure to address the risk of carbon leakage for EU-produced goods produced in CBAM sectors on 3 July 2025.

The proposal, which is expected to be finalised by the end of 2025, aims to support producers of goods at risk of carbon leakage and ensure equal treatment for all goods, whether produced and sold within the EU, imported into the EU, or exported. This scheme would be in place for an initially defined period and then would be reviewed after the new 2026 ETS reform is approved.

The measure is part of the Commission’s efforts to prevent carbon-intensive production from being shifted to countries with less stringent climate policies. This move is a crucial step in promoting a sustainable and low-carbon economy.

The Carbon Border Adjustment Mechanism (CBAM) is the EU’s tool to put a fair price on carbon emissions during the production of carbon-intensive goods entering the EU, and to encourage cleaner industrial production in non-EU countries.

CBAM will apply in its definitive regime from 2026, with a transitional phase from 2023 to 2025. This gradual introduction aligns with the phase-out of free allowances under the EU Emissions Trading System (ETS) to support the decarbonization of EU industry.

CBAM transitional phase (2023 – 2025)

On 1 October 2023, the CBAM entered into application in its transitional phase, with the first reporting period for importers ending 31 January 2024. The gradual phasing in of CBAM allows for a careful, predictable and proportionate transition for EU and non-EU businesses, as well as for public authorities.

CBAM will initially apply to imports of certain goods and selected precursors whose production is carbon-intensive and at most significant risk of carbon leakage: cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

With this enlarged scope, CBAM will eventually, when fully phased in, capture more than 50% of the emissions in ETS-covered sectors. The objective of the transitional period is to serve as a pilot and learning period for all stakeholders (importers, producers and authorities) and to collect useful information on embedded emissions to refine the methodology for the definitive period.

The European Union’s policy initiative, part of the European Green Deal, aims to advance a green economy and achieve climate neutrality by 2050 while maintaining industrial competitiveness.

Carbon leakage occurs when carbon-intensive industries relocate to countries with weaker climate regulations, thereby undermining global climate efforts and the EU’s carbon pricing policies. To combat this, the European Commission plans to introduce targeted support for domestic exporters to non-EU countries that lack comparable carbon pricing systems.

The European Commission emphasised the principle of equal treatment for all goods, ensuring that EU-produced goods remain competitive internationally, despite the Carbon Border Adjustment Mechanism (CBAM) being applied to imports.

The policy is scheduled for formal introduction by late 2025, following stakeholder consultations and alignment with WTO rules.

Earlier, on 22 May 2025, the European Parliament approved changes to the EU’s carbon border adjustment mechanism (CBAM), simplifying the rules and allowing 90% of importers to be exempt from the CBAM regulations.