Pressure is building across the European Union to expand the scope of the Carbon Border Adjustment Mechanism (CBAM), with industrial leaders warning that the current framework could undermine Europe’s manufacturing base. A coalition representing 162 European industrial associations, steelmakers, manufacturers and trade organizations is urging Brussels to broaden CBAM rules. The group includes EUROFER and EUROMETAL.
The coalition is calling for CBAM to move beyond basic raw materials such as steel and aluminium toward a wider set of downstream industrial and steel-intensive products. Industry representatives say the existing design creates an imbalance between carbon costs paid by EU producers under the EU Emissions Trading System (ETS) and carbon-related charges applied to imported goods. They argue that many imported finished and semi-finished industrial products entering the EU remain outside CBAM coverage.
Concerns over carbon leakage in downstream imports
At the center of the debate is carbon leakage, described by industry groups as production shifting to countries with lower environmental and carbon costs. Under the current CBAM structure, imported raw steel or aluminium may face carbon-related charges. However, downstream products made using those materials can still enter the European market without equivalent carbon penalties.
Industry organizations describe this as a competitive distortion that can affect how products are priced in the EU market. They cite examples including imported steel coil potentially facing CBAM costs while finished machinery containing that same steel may avoid similar charges. They also point to fabricated industrial products entering Europe with lower embedded carbon costs, alongside claims that foreign manufacturers can bypass EU climate pricing systems through product coverage gaps.
The concern is reported as especially relevant for sectors including automotive supply chains, construction materials, industrial machinery, defense manufacturing, packaging, household appliances, and heavy engineering equipment. Industry groups argue that such loopholes could encourage production relocation abroad while finished products continue to be sold into the EU.
CBAM enters its financial implementation phase in 2026
The discussion is occurring as CBAM moves into a new stage of implementation. In January 2026, CBAM entered its definitive financial implementation phase. Importers of covered goods are required to gradually purchase CBAM certificates linked to the carbon price under the ETS.
CBAM currently targets highly carbon-intensive upstream sectors. These include steel, aluminium, cement, fertilizers, electricity, and hydrogen.
Demands tied to ETS allowances and trade protections
Industrial groups increasingly argue that restricting CBAM to raw materials leaves a structural gap in the mechanism’s intended function. Manufacturers warn that Europe could export industrial activity while importing finished products containing embedded emissions generated outside EU regulatory oversight.
The steel sector is highlighted as particularly exposed within these concerns. European steel producers are investing billions of euros into decarbonisation projects, including electric arc furnace technology, hydrogen-based steelmaking, carbon capture systems, renewable energy integration, and low-carbon industrial infrastructure.
Industry executives say these projects may become economically unsustainable if downstream imported products continue avoiding equivalent carbon costs. Manufacturers are therefore demanding a rapid expansion of CBAM coverage, slower removal of free ETS allowances, stronger trade protections, and “Made in Europe” procurement rules favoring EU industrial output.
Industrial competitiveness pressures across multiple policy areas
Beyond CBAM scope, manufacturers report pressure from several directions at once. They cite high energy prices, aggressive Chinese industrial competition, U.S. subsidy programs, weakening global demand, rising environmental compliance costs, and geopolitical supply-chain fragmentation.
Industry representatives say climate policy cannot be separated from broader economic competitiveness. They also identify strategic sectors where weakening manufacturing capacity could increase dependence on imported strategic goods while the EU seeks supply-chain resilience and economic autonomy.
Those sectors include defense manufacturing, energy infrastructure, transportation equipment, critical raw materials, industrial technology, and grid modernization.
Energy prices remain central for heavy industry
Manufacturers’ energy-cost concerns focus on electricity prices across Europe compared with other regions. Industrial associations argue electricity prices are structurally higher than in the United States, China, Southeast Asia and parts of the Middle East.
Some industrial groups call for capping industrial electricity prices near €50/MWh to preserve competitiveness for heavy industry. Without lower power costs, they warn that even expanded CBAM protection may not prevent production relocation outside Europe.
Implications for Serbia and Western Balkans exporters
The expansion debate also affects countries outside the EU that are integrated into European manufacturing supply chains. The source highlights Western Balkan countries including Serbia and exporters such as Turkey as facing pressure to modernize industrial production and reduce carbon intensity.
If CBAM expands into downstream industrial products, exporters could be required to provide embedded emissions verification alongside industrial carbon reporting. Additional elements listed include low-carbon electricity sourcing, product traceability systems and CBAM pre-certification frameworks.
The transition described would place greater emphasis on cleaner industrial power generation through emissions monitoring systems and renewable energy integration. It also points to industrial decarbonisation strategies for Serbia and neighboring economies across sectors linked to steel processing, machinery manufacturing and industrial exports.
Administrative complexity as policymakers weigh expansion
Despite industry pressure for broader coverage, European policymakers are described as cautious about expanding CBAM into downstream manufacturing. The source says such an approach would create substantial administrative challenges for governments and businesses.
The challenges listed include complex embedded-emissions calculations, new customs enforcement systems, advanced carbon verification procedures and product-level emissions tracking. Implementing a framework across thousands of industrial products would increase regulatory complexity while momentum for expansion is described as accelerating.