A proposed expansion of the European Union’s Carbon Border Adjustment Mechanism (CBAM) to finished steel- and aluminium-intensive goods is being negotiated in a way that could affect automotive, machinery and component supply chains. The outcome of the talks is expected to influence how far carbon-related obligations extend into those sectors, with knock-on effects for import documentation, sourcing decisions and compliance cost allocation.
European Commission COM(2025)989, published on December 17, 2025, sets out an approach to extend CBAM coverage to selected downstream products from January 1, 2028. A Council negotiating mandate dated June 12 and a European Parliament position dated September 15 propose changes to, or further extensions of, the Commission’s product list. The Parliament’s position identifies 457 products for coverage.
The proposed classifications and obligations have not been enacted as final legislation. Manufacturers therefore cannot determine whether their products will fall within the future scope based solely on their industry or general product description. This uncertainty is part of the planning challenge described by companies preparing for potential CBAM obligations.
Downstream coverage links metal inputs to finished goods
The expansion is intended to address differences in carbon-cost exposure between European processors and foreign suppliers of finished goods. A company processing steel in Germany or Italy may incur costs linked to carbon emissions embedded in covered metal inputs. In contrast, a competitor outside the EU may export certain finished products assembled using comparable steel without facing an equivalent border obligation on those goods.
European metal producers argue that the gap could encourage relocation of processing, cutting and assembly abroad rather than emissions reductions. They also contend that leaving downstream products outside CBAM could weaken Europe’s domestic industrial base. Downstream manufacturers describe a more complex compliance calculation if coverage expands.
Automotive suppliers, machinery manufacturers and component importers say wider coverage could increase documentation requirements, procurement expenses and potential compliance liabilities. At the same time, they note that broader scope could provide additional protection against imported finished goods where carbon costs are not treated equivalently. Global automotive supply chains are cited as an example of how difficult emissions information collection can be.
In automotive supply chains, manufacturers may source castings, fasteners, brackets and housings from multiple regions across several supplier tiers. This structure can complicate collection and verification of emissions information relevant to CBAM. The proposals therefore place emphasis on how emissions data would be handled across layered sourcing arrangements.
Combined Nomenclature codes shape which products are covered
The precise Combined Nomenclature (CN) code is described as central to determining potential exposure under the proposals. Chapter 73 covers many articles of iron and steel, while machinery and electrical equipment generally fall under chapters 84 and 85. However, the proposals identify selected products or subheadings rather than automatically extending CBAM to every item within those chapters.
Manufacturers and importers are expected to map their products against relevant eight-digit CN codes. Industry-level exposure estimates alone are described as insufficient to establish whether a particular component will be covered by final legislation. The treatment of materials used in production is also identified as a key issue for emissions calculations.
The proposals raise questions about pre-consumer scrap, metal precursors and potential resource shuffling. Depending on final rules, scrap generated during manufacturing may be treated differently from post-consumer recycled material when calculating embedded emissions. Suppliers would need evidence on material origins and production processes while avoiding double counting.
Documentation requirements include material origins, production processes and emissions-allocation methods. A general declaration that a product contains recycled steel is described as potentially insufficient for a valid emissions calculation. These requirements are intended to support emissions accounting across different materials and production routes.
Two compliance horizons: 2026 records versus 2028 scope
The negotiations create two distinct planning periods for European buyers. For goods already covered by CBAM, EU authorised declarants must use import and emissions records for 2026 to prepare their first annual declaration by September 30, 2027. This establishes an initial timeline for declarations tied to existing coverage.
For products that may enter the mechanism under the proposed downstream extension, buyers can begin negotiating contractual provisions covering changes in law, emissions evidence and allocation of additional costs. Such arrangements are described as needing to distinguish existing legal obligations from potential requirements beginning in 2028. The proposals also warn against treating every product in a negotiating list as if it were already covered.
Treating items included in a negotiating proposal as already covered would be an unreliable basis for customs declarations and compliance planning. The commercial impact of any wider scope is also said to depend on industrial demand alongside carbon-cost differences. Demand conditions cited include forecasts for EU steel consumption growth and reported export declines.
EUROFER forecasts apparent EU steel-consumption growth of just 0.1% in 2026. It also reported that EU steel exports fell by 20% in the first half of the year. The same section notes that tariffs, trade safeguards and sanctions can affect supplier prices independently of CBAM.
Operational priorities differ for Serbia-based suppliers and EU importers
For Serbian automotive and machinery suppliers, immediate tasks include identifying which components could fall within proposed product coverage. They would also need to establish steel or aluminium inputs used in manufacturing and determine whether reliable emissions records are available at installation level. These steps are linked to how embedded emissions information would be verified for covered components.
German importers are described as needing to manage contractual exposure and ensure clear allocation of carbon-related costs. Poorly drafted price-adjustment clauses could expose buyers to duplicate charges or compliance risks involving emissions data they cannot independently inspect. The complexity increases in multi-tier manufacturing chains where multiple stages contribute emissions.
A multi-tier example given involves a steel mill supplying coil to a processor that produces a blank for a component manufacturer delivering a finished part to an EU customer. Each stage can introduce additional emissions and affect classification of the resulting product under CBAM-related rules if downstream coverage is adopted. Emissions accounting would then need to separate embedded emissions from original metal inputs versus those generated by subsequent processing.
The methodology would also need to prevent the same material from being counted or charged twice under incompatible assumptions. Procurement teams are expected to obtain physical mass-balance records and establish how input quantities are allocated to finished products concerned. These records would connect material consumption with production processes and relevant emissions calculations across the supply chain.
Supply-chain changes affect carbon exposure beyond invoicing location
The proposals describe potential responses by companies including changing supplier locations, redesigning components or renegotiating responsibility for compliance costs. The resulting emissions impact would depend on production efficiency, transport requirements and the origin of materials used. Carbon leakage prevention is identified as a regulatory objective connected to how supply arrangements influence overall emissions outcomes.
The text notes that changing invoicing location alone does not establish that emissions have been reduced. Evaluations of alternative supply arrangements are therefore described as needing consideration of full supply-chain emissions alongside production and commercial costs. This approach links CBAM-related obligations to upstream material pathways rather than only transaction structures.
The final scope of any downstream extension would determine how CBAM’s carbon-cost requirements move from basic steel and aluminium production into more complex manufacturing networks. Negotiations are described as involving not only competing interests between steelmakers and automotive manufacturers but also allocation of regulatory obligations across the wider European industrial supply chain.