The European Union’s Carbon Border Adjustment Mechanism (CBAM) could extend further into industrial manufacturing from 1 January 2028, bringing additional steel- and aluminium-intensive products into the proposed scope. The European Commission has proposed adding 180 downstream product groups, while the European Parliament adopted its negotiating position in September 2026. The final legislative text remains under negotiation.
The proposed expansion addresses the risk that carbon-related production costs could be avoided when steel and aluminium are incorporated into finished goods outside the EU. If only basic materials are covered, carbon-intensive production can shift further along the manufacturing chain, leaving European manufacturers exposed to higher input costs while competing against imported finished products.
The development would move CBAM beyond its initial focus on basic materials and further into industrial supply chains, with implications for procurement, product costing, customs procedures and corporate financing. The existing CBAM framework remains distinct from the proposed downstream measures, which have not yet reached a final legislative agreement.
Downstream manufacturers face competing cost pressures
Steel and aluminium pass through multiple production stages before reaching finished industrial goods. Fabricated metal products, machinery, household appliances, components, transport equipment and other manufactured goods can inherit the carbon costs and emissions characteristics of their intermediate materials.
This creates exposure for downstream businesses even when their finished products are not yet directly listed under the mechanism. Carbon-related costs and documentation requirements can travel through suppliers and components, affecting companies beyond the sectors directly covered by CBAM.
European manufacturers may consequently face carbon-related input expenses while competing with imported finished goods whose upstream steel or aluminium has not been subject to an equivalent adjustment. The difference can affect product pricing and manufacturers’ ability to compete in their respective markets.
Companies able to demonstrate lower embedded emissions may be better positioned to protect margins or market share. Conversely, suppliers that cannot provide reliable emissions information risk having their products assessed conservatively by EU customers.
Product classification and emissions records require coordination
Preparation for the proposed 2028 start date involves mapping Combined Nomenclature (CN) codes, bills of materials, steel and aluminium content, supplier emissions data and contractual rights to obtain information. These records need to establish how the relevant materials contribute to the finished product and support the information required for regulatory transactions.
Internal governance must connect customs, procurement, production, finance and assurance functions. Without coordination, the same product may be represented differently across company systems, creating inconsistencies between material records, customs classifications and emissions documentation.
The supporting assurance file should include product classification, material content, the supplying production installation, verified emissions associated with inputs, transformation losses and controlled allocation of emissions to finished goods.
Maintaining these records continuously is important because the information may be needed by independent verifiers or EU customers. Waiting until a verification request arrives can leave companies needing to reconstruct material flows and emissions allocations across multiple production stages.
Financing risks extend beyond direct CBAM liabilities
Investors and lenders need to assess both potential direct CBAM liabilities and indirect exposure to carbon-related material-price increases. Either channel can put pressure on margins, depending on how costs move through supplier agreements and whether manufacturers can recover them from customers.
The assessment also needs to extend into the 2030s, as the relationship between CBAM and the EU Emissions Trading System (EU ETS) changes over time. These developments can alter the economics of industrial assets designed to operate over longer investment horizons.
The border mechanism is being phased in alongside the reduction of corresponding EU ETS free allocation towards 2034. For primary metals, the commercial difference between efficient and carbon-intensive production routes is expected to widen over time rather than remain at its 2026 level.
Downstream manufacturers therefore need to assess sourcing and investment decisions over several years, rather than limiting their analysis to a single compliance period. The evolution of carbon costs can affect the relative economics of suppliers and the competitiveness of products incorporating steel and aluminium.
Contracts must allocate upstream carbon costs
Commercial agreements need to address the risks created when emissions data and carbon costs originate several stages upstream from the company responsible for the final transaction. Purchase and sales contracts should establish clear requirements for data delivery, verification status, supplier changes, carbon-cost pass-through and remedies for evidence that arrives late or cannot be used.
These provisions are particularly relevant where European manufacturers face additional costs for steel or aluminium inputs but compete against imported finished goods without an equivalent upstream carbon adjustment. If responsibilities are not clearly allocated, the company carrying the legal CBAM obligation may have limited means of recovering costs generated elsewhere in the supply chain.
The proposed downstream expansion would bring carbon-related requirements closer to finished-product manufacturing, connecting CBAM preparation with factory operations, enterprise resource planning (ERP) systems, purchase orders and product-cost calculations.
For companies across the affected supply chains, the relevant capabilities include reducing physical emissions and maintaining evidence that can be used reliably in regulated transactions. The proposed extension would make both elements increasingly relevant to industrial sourcing, cost management and commercial relationships.
