On 1 July 2025, the European Commission (Commission) released a call for evidence regarding the potential to extend the scope of the EU Carbon Border Adjustment Mechanism Regulation (CBAM) to cover certain downstream products.A call for evidence is a public consultation in which the Commission invites all interested parties and stakeholders to provide feedback. In this case, the call for evidence may be used to inform a legislative proposal to amend the CBAM Regulation. This initiative is part of the Commission’s ongoing efforts to address carbon leakage and enhance the effectiveness of CBAM as a climate policy under the European Green Deal.
The extension of CBAM to downstream products is anticipated to prevent downstream carbon leakage, incentivise emissions reduction by non-EU operators, and encourage non-EU countries to increase their carbon pricing ambitions.
Initially introduced in 2023, CBAM is designed to prevent carbon leakage by ensuring that imports face comparable carbon costs as goods produced at sites subject to the EU Emissions Trading System. Currently, CBAM covers cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen, and is primarily limited to commodities (although certain intermediate and a small number of downstream products are included in its scope). The potential extension aims to include a broader range of steel and aluminium-intensive downstream products, addressing the risk of carbon leakage shifting to later stages of the supply chain.
Following a transitional period applicable between 2023 and 2025, CBAM’s definite regime will start to apply from 1 January 2026. During the definite period, importers (or “declarants”) will have obligations in relation to registration, purchasing of CBAM certificates, reporting, and verification of embedded emissions.
The call for evidence follows the European Steel and Metals Action Plan, which identified the risk of downstream carbon leakage. This risk arises when higher carbon costs for basic materials in the EU prompt manufacturers to relocate production abroad where carbon costs are lower, or when imports of carbon-intensive downstream goods replace domestic products with lower embedded emissions.
In addition to extending CBAM’s scope, the consultation includes measures to tackle circumvention practices that have the potential to undermine the environmental integrity of the mechanism. Circumvention may occur when companies make minor transformations to CBAM basic goods outside the EU to avoid CBAM financial adjustments upon import. The additional anti-circumvention measures include reporting requirements on production technology and composition.
The Commission’s consultation is one of a number of broader initiatives and recent updates in relation to CBAM.
In February 2025, the Commission proposed two Omnibus packages aimed at simplifying legislation in sustainability and investment, including a proposal to simplify and strengthen CBAM. The European Council (Council) and European Parliament (Parliament) reached an agreement on this CBAM simplification proposal on 18 June 2025.
For more information on the Omnibus package, see this Latham article.
The provisional agreement retains essential elements of the Commission’s proposal to simplify CBAM rules, including a broader de minimis exemption for importers. This exemption would apply to importers that do not exceed a single mass-based threshold of 50 tonnes of CBAM goods per year, replacing the narrower provisions that exempted goods of “negligible value” (€150). This change is expected to relieve SMEs and individuals from CBAM obligations when importing small quantities of covered goods.
The provisional agreement now awaits endorsement by the Council and the Parliament, with formal adoption anticipated by September 2025.
On 2 July 2025, the Commission announced plans to introduce a new measure by the end of 2025 to address carbon leakage risks for EU-produced goods in CBAM sectors. This proposal will aim to support EU producers and prevent carbon-intensive production from relocating to countries with less stringent climate policies, by seeking to ensure equal treatment for all goods, whether produced, imported, or exported within the EU.
The scheme would initially be set for a defined period and would be reviewed following the 2026 ETS reform approval.
The initiative is part of the Commission’s broader Clean Industrial Deal strategy to drive decarbonisation and competitiveness of EU industry. For further details on the EU Clean Industrial Deal, see this Latham blog post.
On 2 July 2025, the Commission also proposed an amendment to the EU Climate Law, setting a 2040 EU climate target of 90% reduction in net greenhouse gas emissions as compared to 1990 levels.
As part of this announcement, the Commission highlighted the recent agreement on CBAM simplification, describing it as a measure to “reduce red tape and ensure smooth implementation”. Additionally, the Commission reaffirmed its commitment to conduct a general review of CBAM before the end of 2025, accompanied by legislative proposals to strengthen the mechanism. This review is part of the requirement to present a report on CBAM’s application to the Parliament and Council before the transitional period concludes (1 October 2023 to 31 December 2025).
The Commission’s consultation will remain open for eight weeks. A factual summary report will be published following the consultation, with a synopsis report to summarise all results. Feedback can be submitted here.
We will continue to provide updates as the CBAM consultation progresses and the EU’s climate regulation and policy landscape evolve. Further, we will review the outcome of US-EU negotiations on import tariffs, including any potential impact on CBAM.
This article was prepared with the assistance of Samantha Banfield at Latham & Watkins.