European manufacturers could face a broader carbon-accounting regime covering machinery, industrial components and fabricated metal products under the European Commission’s proposed expansion of the Carbon Border Adjustment Mechanism (CBAM). The planned extension would bring selected steel- and aluminium-intensive finished goods within the mechanism from 1 January 2028, extending carbon-related obligations beyond imports of basic metals.
The initiative addresses concerns that the existing CBAM product boundary could encourage manufacturers to move fabrication and assembly operations outside the European Union. Companies could otherwise import finished goods containing carbon-intensive steel or aluminium instead of bringing the underlying materials into the EU and processing them domestically.
The Commission’s proposal seeks to address this potential shift in industrial activity by extending carbon accounting to selected downstream products. However, the legislative process remains incomplete, with the final product coverage and implementation arrangements still subject to negotiations between EU institutions.
Proposed coverage targets steel- and aluminium-intensive finished goods
The proposed scope would include selected products containing substantial quantities of steel or aluminium rather than applying indiscriminately to all manufactured goods containing metals.
Products discussed during the legislative process include machinery parts, fasteners, fabricated components and certain household goods. Their inclusion would bring additional stages of industrial manufacturing into the carbon-border framework.
Customs classification will determine which products fall within the expanded mechanism. Differences between individual commodity codes could result in otherwise similar products facing different reporting requirements or regulatory treatment. Manufacturers therefore cannot rely exclusively on general commercial descriptions such as equipment, machinery or industrial components when assessing potential exposure.
The European Parliament adopted amendments in September 2026, following the Council’s agreement on its negotiating position in June 2026. Both institutions support the principle of extending CBAM to downstream products, but differences concerning product lists and anti-circumvention provisions still require negotiations.
The Commission’s original proposal also contains amendments concerning electricity emissions rules and measures intended to address potential manipulation of emissions reporting. The proposed 1 January 2028 implementation date and the precise range of covered goods remain dependent on the final legislative text.
Machinery manufacturers face more demanding emissions data requirements
Companies supplying machinery and equipment to the EU market would need to assess their potential obligations at individual commodity-code level. An initial compliance assessment should establish the relevant product classification, the quantities of steel and aluminium incorporated into each product, the countries and installations supplying those materials and the intended import route into the EU.
Product portfolios can contain hundreds of variants with different metallic compositions. Applying a single embedded-emissions value across an entire product range could therefore be difficult to justify where material weights and supplier origins differ.
Manufacturers may need to connect bills of materials with supplier emissions declarations, creating traceability between individual products and the metal inputs used in their production. Importers, meanwhile, will need to monitor which proposed customs codes are ultimately included in the adopted legislation.
This would combine customs classification with engineering-level materials accounting. Compliance would consequently require more detailed information than simply recording a carbon-related cost when purchasing basic steel.
Companies with established quality-management and enterprise resource planning systems capable of tracing materials throughout manufacturing could have an advantage in meeting these requirements.
Multiple suppliers complicate embedded-carbon calculations
The accounting challenge increases when finished products incorporate materials from several manufacturing stages and geographical locations.
A fabricated component may contain steel sourced from multiple mills, purchased parts with different emissions profiles and materials that have undergone several processing operations before final assembly. Calculations based solely on emissions from the final assembly facility would fail to capture much of the relevant upstream material content.
Manufacturers would therefore need systems connecting purchase orders, individual material batches, supplier production installations and the emissions attributed to purchased components.
Establishing these links would be particularly important for industrial supply chains involving several component manufacturers and successive processing stages. Reliable product-level information would become increasingly relevant to determining the carbon content associated with finished imports.
Downstream CBAM could influence sourcing and industrial investment
The proposed extension could affect commercial and investment decisions before the legislation enters into force.
European original equipment manufacturers (OEMs) may seek longer-term supply agreements for lower-carbon steel. Component manufacturers outside the EU could introduce emissions warranties into commercial contracts, while logistics providers may need to retain more detailed information about the composition and origin of transported goods.
Changes in sourcing strategies could also affect the geographical distribution of industrial processing. Some suppliers may consider establishing or relocating fabrication activities within the EU, while others could invest in lower-emissions steel inputs or improve emissions traceability at their existing production facilities.
The eventual commercial impact will depend on the product categories included in the final legislation and the methodologies adopted for calculating embedded emissions.
The proposed downstream extension is intended to address the risk that carbon-intensive manufacturing activities migrate from European steel and aluminium production facilities to overseas factories producing finished goods for the EU market. Its implementation will require regulators to establish a workable approach to embedded-carbon pricing while managing the additional reporting and traceability requirements across complex industrial supply chains.
