In its efforts to placate heavy industry, the European Commission’s latest proposed changes to the Carbon Border Adjustment Mechanism serve no environmental purpose. It’s time to refocus the CBAM on the climate.

The European Commission released, on Wednesday, a package of proposals intended to fix perceived loopholes in the CBAM. The proposed changes include the extension of the CBAM to a range of downstream products, the explicit inclusion of anti-circumvention measures and a so-called Temporary Decarbonisation Fund (TCF) to assist EU exporters.

This came in response to industry pressure and criticism, as explicitly stated by Stéphane Séjourné, the EU commissioner for industry. 

“The EU industrial lobby attacked the CBAM throughout 2025 and will continue to do so in 2026 – all because of its addiction to free allocation,” observed Lidia Tamellini, CMW expert on EU industrial decarbonisation.

After initially backing the CBAM, EU heavy industry has grown increasingly hostile towards the carbon border levy, according to a recent analysis of the public positions of industrial interests. This change in tone is due to the fact that the introduction of CBAM, which kicks off in January, will be accompanied by the gradual phasing out of the free pollution permits which energy-intensive industries currently enjoy under the EU’s Emissions Trading System.

Climate: The forsaken link

Although CBAM was conceived and designed as a climate tool, the latest tweaks and fixes will bring little to no climate benefits or impact. For instance, even though the list of products covered has been extensively extended, it will add a modest 0.6% to 2% to the carbon levy’s emission reduction potential, according to the Commission’s own report on the functioning of the CBAM. The biggest chunk of saved emissions, 38.3 million tonnes of CO2 by 2030, will take place thanks to the current CBAM layout, without downstream inclusion.

On anti-circumvention, the Commission cautiously introduced a clause to address “abusive practices” through ad-hoc measures. Claims of “resource shuffling”, the concerns that countries outside the EU will direct their least carbon-intensive exports towards Europe to be less exposed to the carbon tax, have luckily not led to a rehauling or an abuse of default values – the possibility to declare actual values is what makes the CBAM a climate measure, instead of a trade protection one.

More freebies

The Temporary Decarbonisation Fund is a somewhat unexpected response to industry pressure for the EU to find solutions for European exporters. However, providing support, even if it is time-bound, to EU-based producers of polluting products is problematic because it exports pollution and undermines the competitiveness of clean producers. It could also contravene World Trade Organisation rules.

There are elements that mitigate the TCF’s potential shortcomings: it only applies to the production years 2026 and 2027, it targets only a minority of sectors, it will be disbursed after the production takes place, and it is linked to decarbonisation commitments set in climate neutrality plans.

Nevertheless, it sets a bad tone. The TCF is yet another pot of public money going to big polluters, while they continue to receive free allocations under the EU ETS and, in several countries, indirect cost compensation, not to mention Innovation Fund grants, state aid, and other forms of support.

Danger in the fine print

While there’s no immediate dangers of relaxing climate ambition in this proposal, there are some risks hidden in the fine print. Two lines in the text of the proposed review process (here and here) are worrying. For example, the TCF is meant to provide short-term support until “a comprehensive review of how best to address the issue of the remaining risk of carbon leakage from 2028 onwards”. This runs the risk of leading to a delay in the phasing out of free allocations, which would go against the polluter pays principle and undermine the effectiveness of the EU ETS.

In the context of the implementing act calculating the carbon price paid outside the EU, the Commission is empowered to regulate the conditions for deducting carbon credits under Article 6 of the Paris Agreement. In light of how international credits have muscled their way into the EU’s 2040 climate target, this clause could provide another route for these problematic offsets to reenter the EU ETS.

“Any opening of CBAM towards carbon credits (Article 6 or not) would be a grave mistake. International credits were excluded from the ETS for a reason: they are unreliable, don’t deliver promised climate benefits, and water down the whole EU carbon pricing framework,” asserts Wijnand Stoefs, CMW’s EU policy lead. The report on the functioning of the CBAM projects that the measure will have very little impact on the GDP of developing economies where carbon credits projects are mostly carried out. Support for their decarbonisation efforts should come through the reinvestment of CBAM revenue into international climate finance, not through the purchasing of credits of questionable quality.

The European Commission’s pandering to heavy industry has gone far enough. It’s high time to refocus attention on the climate effectiveness of the CBAM. “The Commission must stay the course. CBAM must replace free allocation, and civil society must have a seat at  the table: it is the only way to ensure this tool delivers climate benefits both inside and outside the EU, and doesn’t become a trade protection instrument,” concludes Tamellini.