The Carbon Border Adjustment Mechanism (CBAM) is a tool that puts a price on certain carbon intensive goods entering the EU in order to encourage climate friendly industrial production. But here’s the problem: the CBAM, as it stands, is full of loopholes. If not fixed, it would undermine decarbonisation investments, accelerate deindustrialisation, favour production in third countries, and fail to cut global emissions.

Fair play for a fair transition

European steel producers are facing increasing carbon costs under the EU Emissions Trading Scheme (ETS), while competitors in third countries have been exempted from any carbon costs. The EU steel industry is leading the transition to green production, but cheap imports risk undermining that effort. 

The CBAM can be a game-changer, but only if it’s designed right.

Right now, loopholes allow foreign producers to sidestep carbon costs, shifting emissions elsewhere instead of reducing them. Without fixing these flaws, the CBAM would fail to protect EU industry and could even accelerate deindustrialisation.

CBAM Toolbox: fixing the loopholes to prevent carbon leakage

The CBAM was designed to ensure fair competition and reduce global emissions, but loopholes threaten to undermine its effectiveness. Here’s how we can fix it:

• Exports leakage: keep free allocation for exports to avoid carbon leakage in global markets;
• •Resource shuffling: use only default values based on the most carbon intensive route for a transitional period (e.g. until 2030);
• Downstream sectors: extend the CBAM to steel-intensive downstream goods with a simplified emissions calculation system for complex products;
• Default values: fix default values of stainless steel with the most representative steel grade;
• •Indirect emissions: maintain indirect cost compensation for steelmaking and include indirect emissions for ferro-alloys in the CBAM;
• •Melted and poured: the origin of CBAM goods must be set where the steel was melted and poured;
• Inward processing procedure: delete the inward processing procedure to avoid a major environmental loophole;
• CBAM benchmarks: free allocation benchmarks for long products and stainless steel need to reflect the most climate friendly practices.

Find out more details in our full fact-sheet available for download below.