EU Expands Carbon Border Levy to Car Parts and Appliances, Tightening Climate Trade Rules

The European Union is preparing to significantly expand its Carbon Border Adjustment Mechanism (CBAM), extending the carbon border levy to cover car parts, washing machines, and other downstream products that rely heavily on steel and aluminium. According to draft European Commission proposals seen by Reuters, the changes are set to be published on Wednesday and mark a major step in strengthening the world’s first carbon border tariff.

CBAM, currently in a pilot phase, will begin imposing financial costs from January, with full compliance obligations starting in 2026. The mechanism already applies to high-emission imports such as steel, aluminium, cement, fertilisers, and electricity. Its core aim is to prevent “carbon leakage,” where companies move production outside the EU to countries with weaker climate regulations, undermining Europe’s climate goals.

Under the proposed expansion, the EU plans to include a wider range of products that contain a high share of carbon-intensive materials. These include construction products, power grid components, machinery, car parts, and household appliances like washing machines. Industry groups supportive of CBAM argue that these sectors face the greatest risk of unfair competition from cheaper, high-emission imports.

The European Commission is also seeking to close loopholes that could allow foreign manufacturers to avoid paying the levy. Officials are concerned that some exporters may under-report emissions or selectively send low-carbon products to Europe while continuing high-emission production elsewhere. To counter this, the EU may impose “default” emissions values on imports from countries where reporting is deemed unreliable, potentially increasing CBAM costs for non-compliant firms.

The policy has drawn criticism from major trading partners including China, India, Brazil, and South Africa, which argue that CBAM unfairly penalises developing economies. Despite this, several of these countries have begun expanding or introducing their own carbon pricing systems since CBAM was announced in 2021, suggesting the policy is already influencing global climate action.

From 2026, importers will be charged for the embedded CO₂ emissions of their goods, with companies given until September 2027 to purchase and surrender CBAM certificates. Brussels also plans to allocate 25% of CBAM revenue to support European manufacturers investing in lower-carbon production, reinforcing the EU’s broader climate and industrial strategy.