On December 17, 2025, the European Commission formally submitted a revision proposal within its series of CBAM (Carbon Border Adjustment Mechanism) documents. The core of the proposal is a significant expansion of CBAM’s scope—from the current six basic raw materials (aluminum, cement, electricity, fertilizers, hydrogen, and steel)—to include steel- and aluminum-intensive downstream products, while simultaneously strengthening anti-circumvention measures and optimizing electricity import rules. The proposed regulations are set to take effect from January 1, 2028.

What, then, are the key aspects of this expansion, and how will it impact businesses?

I. Core of the Expansion
The expansion focuses on “steel- and aluminum-intensive downstream products,” covering hundreds of customs codes and falling mainly into three categories:

Steel products and related machinery: e.g., rail materials, steel pipes, structural components, containers, fasteners, and certain industrial machinery.

Metal-composite products: e.g., furniture parts containing steel/aluminum, automotive components (gearboxes, wheels, etc.), electrical equipment, and refrigeration units.

Pre-consumer scrap: Inclusion of steel and aluminum “pre-consumer scrap” to close loopholes that could allow cost avoidance through scrap exemptions.

Product selection is not uniform but is based on:

 

Trade intensity: Prioritizing products with high import/export activity.

Cost-push indicator: Prioritizing products where carbon costs of raw materials constitute a high proportion of total costs.

Emission threshold: Only products whose total embedded emissions exceed a certain industry benchmark are included, to limit burdens on SMEs.

Under this “balanced expansion,” it is estimated that only around 3,800–3,900 additional SMEs will be subject to CBAM obligations, with over 90% of downstream importers likely exempted.

 

II. Anti-Circumvention Measures & Optimized Electricity Import Rules
Regarding anti-circumvention, the Commission proposes including pre-consumer metal scrap (e.g., aluminum and steel) in CBAM accounting and enhancing related reporting requirements. Where reported data are unreliable, additional evidence must be provided to improve traceability and address issues such as misreported emission intensity.

For electricity, the default emission value will shift from reflecting only fossil-fuel-based generation to using the grid average emission factor of the exporting country. This better reflects third countries’ decarbonization progress (e.g., contributions from renewables).
Requirements for declaring actual emissions are relaxed—strict conditions such as “uncongested grid” are removed, and Power Purchase Agreement (PPA) data may be used, reducing compliance difficulties for clean power exporters. This particularly benefits solar and wind power exporters from countries like China and India.

 

III. Corporate Response: A Four-Step Strategy
Instead of waiting passively, businesses should act proactively by building a response system across four dimensions: carbon accounting, supply chain carbon management, low-carbon technology, and trade compliance—turning carbon costs into competitive advantages.

Conduct carbon accounting: Establish an internationally aligned carbon footprint system covering the entire product lifecycle, tracing upstream to accurately calculate embedded emissions of key materials like steel and aluminum.

Manage supply chain carbon: A significant portion of the carbon footprint lies in the supply chain. Prioritize suppliers using green electricity or low-carbon processes, and optimize logistics through nearshoring or localization to cut transport emissions.

Adopt low-carbon technology: Assess and invest in feasible emission reduction technologies, such as scaling up renewable energy in production, electrifying or switching to hydrogen for high-energy processes, adopting carbon capture and utilization, and improving material efficiency and recycling.

Ensure trade compliance: Establish or rely on a specialized team to closely monitor CBAM updates and implementation rules, and master reporting platform operations, certificate purchases, and settlement procedures.

 

IV. Potential Future Expansion Areas
The proposal clearly states that the carbon leakage risks of downstream products related to cement, fertilizers, and hydrogen will be assessed for possible future inclusion. Downstream electricity products are not yet included due to complex emission accounting, but the EU has committed to refining methodologies to allow future expansion. Downstream products with high steel/aluminum content, strong trade flows, and significant carbon intensity are likely future targets.

 

Conclusion
This expansion of CBAM signals an accelerating era of “carbon constraints” in global trade, making low-carbon transition essential for corporate survival and competitiveness. It is not only a compliance challenge but also an opportunity for green transformation of industrial chains. Companies that lead in carbon accounting, supply chain decarbonization, and technology upgrades will build a core competitive edge under the new rules. For global manufacturing, moving up the value chain will inevitably be tied to the journey toward decarbonization.