European manufacturers are reassessing procurement strategies and production investments as proposed changes to the Carbon Border Adjustment Mechanism (CBAM) could extend carbon-cost requirements to additional steel- and aluminium-intensive goods. The potential expansion raises questions about the relative cost of domestic materials, imported components and production located outside the European Union.
The legislative process remains ongoing. The European Parliament adopted amendments on 15 September 2026 and referred the file for interinstitutional negotiations, following the Council’s agreement on its position in June 2026. These negotiating positions do not mean that all proposed downstream products are already covered by CBAM.
Proposed product coverage remains subject to negotiations
The European Commission’s original proposal identified 180 downstream products, focusing on goods containing significant amounts of steel and aluminium that could be exposed to carbon leakage. The legislative institutions have proposed changes to the scope, leaving manufacturers to monitor the final product list, customs classifications and application dates.
The distinction between proposed and applicable requirements is important for procurement planning. Carbon costs on basic metals can create an incentive for buyers to source finished goods containing those materials from outside the EU. Extending CBAM coverage to selected downstream products could reduce that incentive, while bringing emissions-data requirements further into industrial supply chains.
Manufacturers therefore need to separate existing compliance exposure from potential future obligations. Purchasing steel that is already covered by CBAM can affect procurement costs under the current framework. Importing a finished component that appears only in a proposed product list does not, solely because it contains steel or aluminium, create an existing certificate obligation for that finished product.
Component sourcing and investment calculations face regulatory uncertainty
The possible expansion is relevant to manufacturers deciding whether to invest in European assembly capacity or continue importing components. A company assessing a new production line may compare locally sourced components with finished or semi-finished goods purchased abroad. If downstream imports become subject to additional carbon costs, the relative economics of those options could change.
Until the legislation is finalised, investment models need to distinguish between the applicable rules and alternative scenarios under negotiation. Companies should not treat the proposed expansion as an immediate charge across all products that could eventually fall within its scope.
An illustrative contract involving 10,000 tonnes of relevant steel annually demonstrates the potential financial exposure. If future applicable CBAM treatment generated an additional cost of €40 per tonne, the gross annual amount would reach €400,000, before other adjustments.
The €40-per-tonne figure is a scenario assumption, not a current statutory rate or a forecast of the final methodology for downstream goods. The actual effect would depend on the final scope and rules applicable to the product.
Contract terms determine who absorbs additional carbon costs
The allocation of any future cost will depend partly on manufacturers’ commercial agreements. A producer selling components under a long-term fixed-price contract may have to absorb an additional regulatory expense if the agreement does not permit price adjustments.
Where contracts allow changes linked to regulation, some or all of the cost may be passed on to customers. Large buyers may instead seek to require suppliers to absorb part of the increase as a condition of retaining the order.
These arrangements could affect supplier margins even where the underlying manufacturing process and physical product remain unchanged. The commercial outcome will depend on the terms of the contract, the parties’ ability to renegotiate prices and the treatment established by the final legislation.
Complex supply chains increase emissions-data requirements
Extending CBAM to finished components would require manufacturers to examine emissions information across more complex production chains. A component supplier may purchase several grades of steel or aluminium from different installations, while an EU customer imports a finished assembly incorporating those materials.
The relevant emissions information must follow the methodology applicable to the final covered good and its inputs. A supplier’s corporate sustainability report may not contain enough product-specific detail to establish the necessary figures.
For exporters in Serbia, Türkiye and other manufacturing locations serving EU customers, preparations can support commercial negotiations before any expansion takes effect. Product classification, bills of materials and precursor traceability can help businesses identify potentially affected goods and respond to customer information requests under existing contracts.
The quality of this information is relevant to both future compliance planning and current supplier relationships. Manufacturers that cannot trace the materials used in individual products may find it more difficult to assess potential exposure or substantiate the information requested by European buyers.
Import dependence and inventory timing affect company valuations
Equity investors also need to consider manufacturers’ sourcing arrangements alongside their production locations. Businesses importing large volumes of components that could become covered under an expanded CBAM framework may face a different exposure from companies purchasing metal domestically.
Inventory accumulated before a regulatory change could produce temporary commercial advantages or valuation risks, depending on when the relevant rules apply and when the goods are sold. The timing of purchases, the applicable product classification and the eventual treatment of existing stock would influence the outcome.
The final scope of the legislation will determine how costs are distributed across European processors and manufacturers dependent on imported components. Broader coverage could strengthen the competitive position of some EU-based processors while increasing costs for other businesses that rely on foreign-sourced parts.
As negotiations continue, manufacturers need to keep current liabilities separate from possible future costs when evaluating sourcing options, contractual exposure and capital expenditure. The proposed expansion should not be priced into every potentially affected product as though the additional charge were already in force.
