EU CBAM in 2026: the next round of sector and scope expansion

From transition to definitive phase #

The CBAM transition phase ran from October 2023 through December 2025 and required quarterly reporting of embedded emissions on six sectors: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Reporting carried no financial liability, but it gave the Commission, member state authorities, and importers a working dataset on supplier emissions intensities and on the gap between default values and verified plant level data.

On January 1, 2026, the regulation entered its definitive phase. Authorized CBAM declarants must now buy and surrender certificates equal to the embedded emissions in covered imports, less any carbon price already paid in the country of production and less the share of free allowances still allocated to the equivalent EU producer. The free allowance phase down begins this year and runs through 2034, mechanically tightening the CBAM bite each year even if the headline price holds steady.

Two policy questions now dominate Brussels debate. First, which additional sectors should be brought inside the perimeter on the schedule already foreseen in the founding regulation. Second, whether scope and methodology should expand to cover indirect emissions on the remaining sectors, downstream finished goods, and selective scope 3 categories. The answers will shape industrial competitiveness across the bloc and reshape pricing on a long list of imported goods.

How CBAM actually works in the definitive phase #

CBAM is an embedded emissions accounting system bolted onto the EU customs frontier. For each covered shipment, the importer must declare the tonnes of CO2 equivalent embedded in the goods. Embedded emissions can be reported on the basis of verified installation level data, where the producer has cooperated with a recognized verifier, or on the basis of default values published by the Commission. Default values are deliberately set above the typical EU intensity for the same product so that verified data is the cheaper option for any reasonably efficient producer.

Once embedded emissions are declared, the importer multiplies them by the weekly average EU ETS auction price to determine the certificate liability. The importer surrenders certificates from a dedicated CBAM registry account. Any explicit carbon price paid in the country of production, whether through a tax or an emissions trading system, is deducted, but only to the extent it has not been refunded or rebated. The methodology favors carbon prices that are transparent, mandatory, and economy wide.

The free allowance offset is the most important transitional feature. EU producers in covered sectors still receive some free EU ETS allowances in 2026, and CBAM certificates are reduced proportionally so that imports are not over taxed relative to domestic output. The free share falls each year on a published schedule, reaching zero in 2034. Importers and EU producers alike therefore face a known glide path of increasing carbon cost, even if the underlying ETS price stays flat.

Direct exposure by trading partner #

Using CEPII BACI HS6 trade data filtered to flows into the EU27, we can rank countries by direct CBAM exposure on the four merchandise sectors that dominate value: cement clinker (HS 25), nitrogen fertilizers (HS 28 and HS 31), iron and steel (HS 72), and aluminum (HS 76). The exposure picture is highly concentrated: a handful of partners account for the bulk of liability, and the same few countries appear repeatedly across sectors.

The table below summarizes indicative 2024 to 2025 EU import shares and qualitative CBAM intensity for the largest exposed partners. Intensity reflects both the carbon footprint of the production base and the absence or weakness of an offsetting domestic carbon price.

The next round: candidate expansions on the table #

The founding regulation explicitly anticipates expansion. Three families of expansion are now actively debated. First, additional upstream materials such as commodity organic chemicals, polymers, glass, ceramics, and pulp and paper. These sectors share the carbon intensive, trade exposed character of the original six. Second, downstream goods that embed already covered materials, such as steel intensive automotive parts, structural fabrications, white goods, and aluminum cans. Third, methodological deepening, in particular the inclusion of indirect emissions on steel and aluminum and a partial extension into selected scope 3 categories.

Each expansion has a different political economy. Upstream chemicals expansion is favored by EU producers who already face ETS exposure on their own emissions. Downstream expansion is technically harder because embedded emissions trace through complex bills of materials, but it closes the most obvious circumvention route, which is to import a finished good rather than the input. Indirect emissions expansion most affects countries whose grids are coal heavy.

The Commission is widely expected to publish a formal expansion proposal during 2026, with adoption envisaged in 2027 and entry into force from 2028 or 2029. The candidate list below summarizes the leading options, their indicative trade footprint, and the key implementation challenge.

Strategic responses by trading partners #

Three strategic responses are visible. The first is bilateral alignment. The EU is using climate club style dialogues to encourage partners to adopt their own carbon pricing, which reduces the residual CBAM liability and avoids the political cost of a confrontation. Active dialogues with the United Kingdom on ETS linkage, with Turkey on a pilot ETS, and with several Asian partners on measurement, reporting, and verification cooperation, all fit this pattern.

The second response is domestic content and industrial policy. The United States approach under successive Inflation Reduction Act amendments has been to combine production tax credits with origin requirements that reward low carbon intensity at the plant level, an implicit but unilateral carbon border policy. Several Asian partners are studying similar instruments. The risk is a fragmented landscape of incompatible carbon accounting systems, each subsidizing local champions.

The third response is grievance. Several developing country members have raised CBAM at the WTO Committee on Trade and Environment, arguing that the methodology disadvantages countries with carbon intensive grids that they cannot quickly decarbonize, and that the absence of a financial transfer mechanism makes the measure regressive. Formal disputes remain unlikely in the short term because the legal terrain is untested, but the political pressure is real and shapes Commission choices on default values, exemptions, and revenue use.

Three scenarios for 2026 to 2028 #

Orderly expansion. The Commission proposes a measured expansion to chemicals, polymers, and downstream steel and aluminum goods in 2026, with phased implementation from 2028. EU ETS price holds in a moderate range, free allowance phase down proceeds on schedule, and most major partners either accept the methodology or negotiate carbon price equivalence. CBAM revenues, partially earmarked for climate finance, defuse the worst of the WTO grievance.

Sector pause. Industrial pushback inside the EU, especially from downstream manufacturers worried about input cost inflation, leads the Commission to defer downstream expansion and focus only on upstream chemicals and polymers. Indirect emissions expansion is delayed. The free allowance phase down continues, so the policy still tightens, but the perimeter stops growing for two to three years.

Retaliation cycle. One or more major partners impose mirror measures on EU exports, citing carbon intensity in EU production for politically sensitive products. WTO panels are requested. The EU responds by accelerating expansion to downstream goods and tightening default values, raising overall trade tension. In this scenario, sourcing strategies and contract clauses on carbon costs become the dominant operational issue for exposed firms.

How Deluair Consulting helps #

Promethean is our carbon and energy analytics platform. It tracks EU ETS spot and forward prices, default values published by the Commission, the free allowance phase down schedule, and the implied CBAM cost per tonne of product across the six in scope sectors and the leading candidate expansions. Clients use Promethean to stress test procurement budgets, structure pass through clauses, and identify which suppliers most reduce CBAM liability through verified emissions data.

TradeWeave is our tariff and non tariff measure intelligence platform. It maps HS level trade flows from BACI and mirror sources, layers on tariff schedules, sanctions, and now CBAM coverage, and projects landed cost under alternative policy paths. The combination of Promethean and TradeWeave gives clients a single view of carbon price risk and trade policy risk, which is increasingly the same conversation.

If your business imports cement, steel, aluminum, fertilizer, hydrogen, or electricity into the EU, or supplies downstream goods that embed those materials, the definitive phase is already affecting margins and the next round will widen the perimeter. Visit deluair.com/engage to scope a CBAM exposure review combining Promethean carbon analytics and TradeWeave trade intelligence.

Sources #

• European Commission CBAM regulation
• EU ETS price data (EEX)
• CEPII BACI EU import panel
• WTO trade and environment notifications
• CARBON Tax Center cross-jurisdiction tracker