European Union Expands Carbon Border Adjustment Mechanism to Cover Additional 180 Products
European Union Expands Carbon Border Adjustment Mechanism
The European Union is set to broaden the scope of its Carbon Border Adjustment Mechanism (CBAM) by including 180 additional products under its scope from January 1, 2028. The move aims to increase carbon tax costs on Indian-manufactured exports to Europe.
The European Parliament's Committee on the Environment, Climate and Food Safety has recommended the expansion of the CBAM scope following a transitional phase from 2023 to 2025. The European Commission has proposed the expansion to address the risk of emissions being shifted along the value chain rather than being effectively reduced.
The commission has outlined plans to include selected steel- and aluminium-intensive downstream products in the CBAM scope. This move is expected to address the risk of carbon leakage in downstream sectors.
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A draft report by the European Parliament's Committee on the Environment, Climate and Food Safety proposed five major changes to the CBAM regime. These changes include extending the CBAM to around 180 additional steel- and aluminium-based manufactured products from January 1, 2028, and tightening carbon accounting rules for scrap-based production.
| Current CBAM Scope | Newly Proposed Products |
|---|---|
| Iron and steel | Fabricated metal products |
| Aluminium | Tubes and pipes |
| Cement | Fasteners and structural components |
| Fertilisers | Machinery parts |
| Hydrogen | Aluminium containers |
| Electricity | Semi-finished and finished engineering goods |
| ... |
The expansion of CBAM would bring many new products under its scope, including fabricated metal products, tubes, pipes, fasteners, structural components, machinery parts, aluminium containers, and other semi-finished and finished engineering goods. The European Union has not yet published product details, but the proposal indicates that the levy is moving deeper into the manufacturing value chain.
The proposed expansion of CBAM is expected to increase carbon tax costs on Indian exporters of engineering goods, auto components, fabricated metal products, machinery, aluminium manufactures, and other industrial goods when exporting to Europe.
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Investor Takeaway
Investors should be cautious of potential increased costs for Indian-manufactured exports to Europe due to the expanded carbon tax.
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