The European Union is facing internal divisions over its landmark Carbon Border Adjustment Mechanism (CBAM), just months before the system is set to take effect. The European Commission plans to review the CBAM later this year to refine its implementation, addressing loopholes and expanding its coverage to new products.
Purpose and Structure of CBAM
CBAM is designed to impose a carbon tax on imported goods to ensure that European industries — which pay around €80 per tonne of carbon emissions under the EU Emissions Trading System (ETS) — are not undercut by cheaper, higher-emission imports. The goal is to prevent “carbon leakage”, where companies relocate production to countries with weaker environmental standards.
The mechanism will start phasing in next year, while free ETS allowances for heavy industries will begin to be phased out from 2027. Ultimately, all companies — both within and outside the EU — will pay for their carbon emissions, either via CBAM or ETS.
Industry Pushback and Concerns
However, the transition has provoked a backlash from industry leaders.
In a joint letter to German Chancellor Friedrich Merz, more than 70 companies, including BASF, Ineos, and SKW Piesteritz, warned that the existing CBAM rules threaten the economic survival of energy-intensive industries. They argued that high costs could derail the EU’s clean transition.
A separate appeal from 46 major European corporations, including TotalEnergies and Siemens, urged both Merz and French President Emmanuel Macron to maintain free ETS permits until CBAM proves its effectiveness.
Industry executives stress that the financial strain is already immense.
Petr Cingr, CEO of SKW Piesteritz, said his company expects to spend €500 million on emissions permits by 2030, compared to annual revenues of €800 million.
The Split Within Europe
While some industry figures describe CBAM as “incomplete” and “broken,” others insist that weakening it would be a mistake.
Leon de Graaf, acting president of the Business for CBAM coalition, argues that rolling back or delaying the mechanism would undermine companies that have invested in low-carbon technologies and damage the EU’s credibility in promoting global carbon pricing.
He emphasized that CBAM has already inspired other countries, such as Brazil, Turkey, and Japan, to strengthen their carbon pricing systems — an outcome that aligns with EU climate goals.
Debate Over Expanding CBAM’s Scope
One of the most contentious aspects of the upcoming review concerns whether CBAM should extend to finished goods made from materials already covered, such as cars or washing machines.
Critics argue that such an expansion would be unmanageable due to the complexity of tracking emissions across supply chains.
The Brazilian National Confederation of Industry warned that this move would lead to “higher costs to collect and validate data,” creating unnecessary administrative burdens. EU officials acknowledge the challenge, suggesting that only targeted extensions — based on criteria like competitiveness — should be considered to avoid a “bureaucratic ordeal.”
Looking Ahead
EU Climate Commissioner Wopke Hoekstra has urged pragmatism, noting that adjustments may be necessary to make the system workable. “I would rather have us be street-smart, change it, make it workable, and move on,” he said.
The European Commission aims to strike a balance between protecting the environment and safeguarding European competitiveness. But as industries warn of soaring costs and policymakers defend the EU’s green credibility, the coming months will test whether CBAM can survive its own political and economic turbulence before it officially takes effect.
