BRUSSELS/BERLIN, Oct. 22, 2026 – The proposed extension of the European Union’s Carbon Border Adjustment Mechanism (CBAM) to finished steel- and aluminium-intensive goods is creating competing priorities for metal producers and downstream manufacturers. The outcome of the negotiations will determine how far carbon-related obligations extend into automotive, machinery and component supply chains, affecting import documentation, sourcing decisions and the allocation of compliance costs.
The European Commission’s COM(2025)989, published on December 17, 2025, proposes extending CBAM coverage to selected downstream products from January 1, 2028. The Council’s negotiating mandate of June 12 and the European Parliament’s position of September 15 propose changes to or extensions of the Commission’s product list. Parliament’s position identifies 457 products for coverage.
The proposed classifications and obligations have not been enacted as final legislation. Manufacturers cannot determine whether their products fall within the future scope solely from their industry or general product description.
Proposed product coverage divides metal producers and manufacturers
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 associated with the carbon emissions embedded in covered metal inputs. A competitor outside the EU may, however, export certain finished products assembled using comparable steel without facing an equivalent border obligation on those goods.
European metal producers argue that this gap could encourage companies to relocate processing, cutting and assembly abroad instead of reducing emissions. They contend that leaving downstream products outside the mechanism could weaken the position of Europe’s domestic industrial base.
Automotive suppliers, machinery manufacturers and component importers face a more complex calculation. Wider coverage could offer additional protection against imported finished goods whose carbon costs are not treated equivalently, but it could also increase documentation requirements, procurement expenses and potential compliance liabilities for companies that import specialised metal components.
Global automotive supply chains illustrate the challenge. Manufacturers may source castings, fasteners, brackets and housings from multiple regions and across several supplier tiers, complicating the collection and verification of emissions information.
Customs classifications determine which goods may be covered
The precise Combined Nomenclature (CN) code of a product is central to determining potential exposure. 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 product within these chapters.
Manufacturers and importers therefore need to map their products against the relevant eight-digit CN codes. Industry-level exposure estimates alone cannot establish whether a particular component will be covered by the final legislation.
The proposed treatment of pre-consumer scrap, metal precursors and potential resource shuffling introduces further questions. Depending on the final rules, scrap generated during manufacturing may be treated differently from post-consumer recycled material when calculating embedded emissions.
Suppliers will need to document material origins, production processes and emissions-allocation methods while avoiding double counting. A general declaration that a product contains recycled steel may not provide sufficient evidence for a valid emissions calculation.
Supply contracts face separate 2026 and 2028 compliance horizons
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.
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 the allocation of additional costs. Such arrangements should distinguish existing legal obligations from potential requirements beginning in 2028.
Treating every product included in a negotiating proposal as though it were already covered would create an unreliable basis for customs declarations and compliance planning.
The commercial impact of a wider scope will also depend on industrial demand. EUROFER forecasts apparent EU steel-consumption growth of just 0.1% in 2026 and reported that EU steel exports fell by 20% in the first half of the year. Even where carbon-cost differences are reduced, weaker automotive production or delayed construction projects can constrain demand for European steel. Tariffs, trade safeguards and sanctions can also alter supplier prices independently of CBAM.
Serbian suppliers and EU importers face different operational priorities
For Serbian automotive and machinery suppliers, the immediate task is to identify which components could fall within the proposed product coverage, establish the steel or aluminium inputs used in their manufacture and determine whether reliable emissions records are available at installation level.
German importers, meanwhile, need to manage contractual exposure and ensure that carbon-related costs are allocated clearly. Poorly drafted price-adjustment clauses could expose buyers to duplicate charges or compliance risks involving emissions data that they cannot independently inspect.
These challenges become more pronounced in multi-tier manufacturing chains. A steel mill may supply coil to a processor, which produces a blank for a component manufacturer that subsequently delivers a finished part to an EU customer. Each stage can introduce additional emissions and affect the classification of the resulting product.
If the proposed downstream extension is adopted, emissions accounting will need to distinguish between those embedded in the original metal inputs and those generated by subsequent processing. The methodology must also prevent the same material from being counted or charged twice under incompatible assumptions.
Procurement teams will need to obtain physical mass-balance records and establish how input quantities are allocated to the finished products concerned. These records can help connect material consumption, production processes and the relevant emissions calculations throughout the supply chain.
Supply-chain changes will affect carbon exposure and production costs
Companies may respond to the proposed rules by changing supplier locations, redesigning components or renegotiating responsibility for compliance costs. The resulting emissions impact will depend on production efficiency, transport requirements and the origin of the materials used.
Preventing carbon leakage is the regulatory objective; changing the invoicing location alone does not establish that emissions have been reduced. Evaluations of alternative supply arrangements therefore need to consider full supply-chain emissions alongside production and commercial costs.
The final scope of the downstream extension will determine how CBAM’s carbon-cost requirements are carried from basic steel and aluminium production into more complex manufacturing networks. The negotiations involve not only the competing interests of steelmakers and automotive manufacturers, but also the allocation of regulatory obligations across the wider European industrial supply chain.
