European energy-intensive industries are asking EU governments to keep carbon-leakage safeguards as the Carbon Border Adjustment Mechanism (CBAM) moves into its definitive phase. Industry groups say that cutting free EU ETS emissions allowances without an export-focused solution could expose European manufacturers to carbon costs that competitors in third-country markets do not face.
The discussion centres on a structural difference between the EU’s two carbon-protection tools. CBAM is intended to align carbon costs between European production and covered imports, but it does not automatically compensate EU manufacturers when they sell abroad. This means export sales can face different carbon-cost conditions than those applied to imports entering the EU.
CBAM covers imports, while exporters face a different cost exposure
The export-side risk affects sectors that must absorb EU ETS costs while competing in international markets. Steel, aluminium, cement and fertiliser producers are highlighted as particularly exposed because their products are traded globally. In those markets, manufacturers may have limited ability to pass additional production costs on to customers.
Free allowance reductions are linked to the introduction of CBAM. The policy rationale is that European producers should need less protection against carbon leakage once competing imports face equivalent carbon costs at the EU border. Industry representatives argue that this logic addresses competition within Europe but does not address the situation for EU firms selling outside the bloc.
As free allocations decline, exporters could see a widening gap between their domestic carbon costs and those faced by international competitors. The concern is that reducing safeguards before an effective export solution is established could weaken investment incentives for energy-intensive production in Europe. Manufacturers selling into global commodity markets may struggle to recover higher carbon costs through prices, particularly where overseas suppliers operate under less stringent carbon-pricing systems.
Export protection proposals face trade and subsidy constraints
The policy debate is therefore extending beyond import treatment to whether additional measures are needed for European producers competing in third-country markets. Any new export-protection mechanism would need assessment against international trade rules. An export rebate tied directly to carbon costs could be challenged as a subsidy.
No new export-compensation system has been adopted. The existing ETS framework continues to govern free-allocation rules, so industry calls relate to potential future changes rather than a measure already in force. The issue described is how the EU could maintain incentives for domestic decarbonisation while limiting competitive disadvantage for exports.
Export treatment is presented as distinct from CBAM’s import-side function under the current framework. Industry groups argue that the two issues cannot be treated as equivalent based on existing design. As a result, the debate focuses on how rising domestic carbon costs would be managed when products are sold outside the EU market.
Investment assessments depend on sales geography and ETS liabilities
The uncertainty has implications for capital-intensive projects across steel, aluminium, fertilisers, cement and other energy-intensive sectors. A steelmaker evaluating a multibillion-euro low-carbon production project would need to consider whether operating costs can be recovered through both European sales and exports. The concern is that if overseas competitors do not face equivalent charges, investment economics could weaken.
Financiers are also expected to examine how EU ETS liabilities interact with CBAM protection and with where companies sell their products. A firm selling almost exclusively within the EU may benefit more directly from CBAM’s protection against covered imports than a manufacturer with heavy customer exposure outside the bloc. These differences can affect long-term cash-flow assumptions and project viability.
The source links those assessments to changes in free allowances and to operating cost drivers including carbon prices and electricity costs. It also notes that access to low-carbon energy can influence business economics over time. Under this framework, shifts in carbon-cost conditions can alter expected financial returns associated with decarbonisation investments.
Serbia, Montenegro and Western Balkans firms encounter CBAM differently
The export-side question is also described as relevant for Serbia, Montenegro and the wider Western Balkans. Industrial producers in the region primarily encounter CBAM as an import-side measure when goods enter the EU market. At the same time, they may compete directly with European manufacturers in third countries.
If additional protection were introduced for European exports, the relative competitive position of Western Balkan producers could change in markets outside the bloc. If no such mechanism is introduced, differences in carbon costs could still influence where energy-intensive investment is located, including in neighbouring markets with lower carbon costs and access to European customers. The competitive position of regional producers is described as depending not only on emissions and costs but also on how EU policy treats manufacturers selling within and beyond Europe.
Mergers, valuations and lending incorporate export-related carbon exposure
The export-side issue is also said to affect mergers and acquisitions, corporate valuations and lending decisions. Banks and investors assessing steel, aluminium and fertiliser businesses are described as needing to consider both emissions intensity and where products are sold. A high-emitting producer with substantial exposure to EU customers would have a different risk profile from a lower-emission producer relying heavily on exports outside the bloc.
The source links changing business economics to future EU ETS price levels, reductions of free allowances, electricity costs and access to low-carbon energy. It adds that mergers and acquisitions due diligence may require scenario analysis covering different ETS price levels, changes in free allocation and variations in domestic versus export sales. These factors can influence expected cash flows and financial returns tied to decarbonisation investments.
As CBAM advances, European industry groups are pressing for the export competitiveness question to be addressed alongside CBAM’s established role protecting the EU market from carbon-intensive imports. The current rules are described as unchanged, while the debate increasingly concerns how European manufacturers manage rising domestic carbon costs while competing internationally.