Brussels, December 17, 2025 – The European Union (EU) is set to strengthen its carbon border levy, extending the world’s first carbon border tariff to include imported car parts, construction machinery, and household appliances like washing machines, according to proposals published by the European Commission on Wednesday. The move aims to tighten loopholes and prevent foreign companies from avoiding the fee, which is currently in a pilot phase and will start imposing costs from January 2026.

What is the Carbon Border Adjustment Mechanism (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM) is designed to protect European industries from cheaper imports originating in countries with weaker climate regulations. Currently, CBAM covers high-emission goods such as steel, aluminium, cement, and fertilisers, and charges importers a fee equivalent to the carbon costs EU companies already pay under the bloc’s carbon market.

By expanding the levy to downstream products with a high share of steel and aluminium, including construction products, car parts, and machinery, the EU aims to prevent carbon leakage – the risk that companies relocate production abroad to avoid stringent climate policies.

Tackling Evasion and Under-Reporting

The European Commission also proposes stricter rules to prevent foreign companies from under-reporting emissions to reduce CBAM costs. If evidence emerges that a company is evading the levy, the EU can apply “default emissions values” to its products, increasing the CBAM bill. This measure targets countries like China, where producers could otherwise ship low-carbon goods to Europe while continuing high-carbon production elsewhere.

EU Climate Commissioner Wopke Hoekstra emphasized:

“We’re not asking anything more, but also not asking anything less, for those goods that come into the European Union.”

Industry groups have welcomed the proposals. Leon de Graaf, acting president of the Business for CBAM Coalition, said the levy effectively targets products at highest risk of carbon leakage, encouraging companies worldwide to adopt cleaner production methods.

Timeline and Revenue Use

CBAM will officially charge importers from 2026, with companies required to buy and surrender CBAM certificates by September 2027. The EU has also proposed using 25% of the revenue from the scheme to compensate European manufacturers facing higher production costs due to the levy, focusing on industries that invest in low-carbon manufacturing technologies.

Since its announcement in 2021, CBAM has already influenced global carbon policy. Countries such as China, India, and Brazil, despite criticizing the EU approach, have developed or expanded domestic carbon pricing systems, reflecting CBAM’s role in shaping international climate efforts.

Global Impact

The expansion of CBAM signals the EU’s commitment to decarbonising trade and ensuring that climate policies are not undermined by imports from nations with weaker environmental regulations. By imposing carbon costs on imported goods, the EU encourages global emission reductions, supports European manufacturers, and fosters a more level playing field in international trade.