On 12 June 2026, the Council of the EU adopted its position on the extension of the Carbon Border Adjustment Mechanism (CBAM). The new framework is intended to extend the scope of CBAM to new products and close loopholes. At the same time, China’s new regulation on industrial and supply chain security presents companies with additional challenges – including in relation to CBAM compliance.
The Commission’s proposal COM(2025)0989 forms the basis of the current discussions and provides for a significant extension of the scope of the CBAM. In future, around 180 downstream products from steel- and aluminium-intensive sectors – so-called downstream products – are to be covered. The proposed new annex covers numerous product categories, in particular further iron and steel products as well as composite metal products. These range from motor vehicles, car bodies and vehicle parts (Chapter 87 of the CN) through to electrical machinery, apparatus and equipment (Chapter 85 of the CN), as well as medical instruments (Chapter 90 of the CN) and furniture (Chapter 94 of the CN). In addition, there are various other machinery and apparatus such as engines, burners and cooling devices (Chapter 84 of the CN), articles of base metals (Chapter 83 of the CN) and other iron or steel products such as cables, springs and household articles (Chapter 73 of the CN). The full list can be found in the annex available here. However, the relevant working group of the Council of the European Union, which has also begun its advice on the reform of the CBAM, is already proposing a further extension of the scope to a total of 200 downstream products. Furthermore, the list is to be reviewed dynamically on an annual basis and adjusted as necessary.
Furthermore, the Commission plans to include aluminium and steel scrap in emissions calculations in future, in order to promote the use of recycled materials and ensure fair CO₂ pricing for EU products and imports. Furthermore, the Commission is to be empowered to temporarily exempt individual goods from the CBAM by means of a delegated act in the event of a crisis. Where there is a risk of abuse, stricter requirements regarding actual emission levels may be imposed. The traceability of CBAM goods is also to be improved through extended reporting obligations. In addition, the draft provides for a new decarbonisation fund designed to temporarily support EU manufacturers of CBAM goods and mitigate the risk of carbon leakage by reimbursing part of the CO₂ costs under the EU ETS. New anti-circumvention measures are also planned. The current 50-tonne threshold will remain in place for the time being and is to be reassessed in 2027.
Although the draft report is not legally binding, it sets out a clear political direction. Essentially, it welcomes the Commission’s proposal but goes further in certain specific provisions.
With regard to crisis exemptions, the draft report rejects the proposed delegated power and calls for such exemptions to be decided only through the ordinary legislative procedure – a clear signal in favour of greater parliamentary control at the expense of flexibility. The draft report takes a similarly restrictive stance on the issue of carbon credits. The Commission had indicated that it would allow emission credits under Article 6 of the Paris Agreement to be counted towards CBAM obligations. The draft report removes this option without providing an alternative – compliance with the CBAM through the purchase of foreign emission allowances would thus be ruled out.
Alongside these restrictions, the draft report also seeks to extend the scope of application. With regard to indirect emissions, which have so far only been relevant in the cement and fertiliser sectors, it advocates the gradual inclusion of further industries. The proposed extension of the CBAM to additional product groups, including certain chemicals, polymers and recycled materials, points in the same direction. This means that a cross-sectoral application of the instrument is increasingly coming into focus.
In addition, with its general approach published on 12 June on extending the scope of the CBAM and introducing anti-circumvention measures, the Council has decided to further extend the scope to a total of 200 downstream products. Compared with the draft report, the Council wishes to include significantly more CN subheadings from Chapters 73, 84, 85 and 87 and to delete only three CN subheadings from heading 9018. Furthermore, the Commission is to be granted additional powers to identify abusive practices and, where necessary, take further action. Particular mention is made of the harmful reallocation of resources (so-called ‘resource shuffling’), whereby operators with different
production sites with different production technologies and significant differences in emission intensity deliberately export the cleanest proportion of goods to the Union without pursuing a structural decarbonisation strategy for the production of the remaining goods.
For companies with Chinese suppliers, there is a further aspect to consider. China’s new State Council Order No. 834 on industrial and supply chain security (as reported by GvW) may have a direct impact on CBAM compliance.
Article 13 of State Council Order No. 834 makes the collection of information in China a separate compliance issue. Organisations and individuals are prohibited from carrying out supply chain-related investigations or data collection in China in breach of Chinese laws, regulations, administrative rules and other relevant state requirements. The boundary between permissible and impermissible activities is not defined in detail. Article 13 does not, however, create a standalone prohibition on data collection, but rather links the offence to a breach of other Chinese regulations. Although Article 13 thus presupposes a separate breach of Chinese law, this threshold should not be regarded as remote. China has several broad-ranging regimes for information control which must be taken into account. Of particular note is Article 4(3) of the Anti-Espionage Law, which extends the scope of espionage-related conduct beyond traditional state secrets and intelligence information to include other documents, data, materials and objects relating to national security or national interests. Further examples include the Data Security Law and the amended and expanded State Secrets Law. In practice, therefore, there is a realistic risk that the collection of information relating to sensitive supply chains may be classified as a breach of Chinese law.
These regulations have a direct impact on the CBAM compliance of European companies. China’s broad-ranging information control laws may also affect data collection relevant to CBAM. This includes, in particular, emissions data from Chinese suppliers, but also geolocation data of production sites and manufacturing facilities, as well as the names and addresses of suppliers and, where applicable, their upstream suppliers. European companies should bear this in mind in their business dealings with China – whether when collecting emissions data from subsidiaries or third parties, conducting on-site audits of production companies, or similar activities. In practice, it is therefore advisable to carry out a preliminary legal review prior to on-site audits and data collection in China, to secure contractual agreements with Chinese suppliers regarding the provision of data and – where permissible – the use of permissible standard or default values instead of collecting actual emissions data. With these newly enacted laws, the Chinese government has in any case added further tools to its toolkit to lend weight to its arguments in international trade disputes.
Although the legislative process is still in its early stages, a clear direction is emerging. The CBAM is likely to be designed to be more comprehensive, stricter and less flexible in future. In particular, companies that were not previously covered by the scope of the legislation should check as soon as possible whether they import goods affected by the extension. Given the CN codes mentioned, this applies primarily to importers of machinery, motor vehicle parts, household appliances, furniture and construction products. However, as the majority of the changes are due to be introduced on 1 January 2028, there is still time to prepare for the efficient implementation of the CBAM.
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