The European Commission is studying the feasibility of extending the Carbon Border Adjustment Mechanism (CBAM) to apply to products that are downstream of the goods subject to CBAM, including iron and steel.

Such an extension would offer some protection to steel-consuming industries in Europe whose continuity could be threatened by lower-priced, higher-carbon-embedded competing product imports. This would, in turn, support the retention of steel consumption within Europe, Kallanish notes. European steelmakers’ association Eurofer has therefore been vocal about the need for CBAM to be extended to downstream products.

The purpose of including downstream products is to mitigate the risk of carbon leakage of upstream CBAM basic goods as well as the downstream products, the Commission says.

Companies currently located in the EU that are manufacturing downstream goods using as primary inputs the CBAM basic goods might, for example, move their manufacturing and processing operations to non-EU countries. End consumers in the EU may prefer to purchase downstream products from producers in non-EU countries with less stringent climate policies, rather than from downstream producers in the EU, the Commission observes.

The downstream extension would “decrease the likelihood of circumventing the inclusion of basic goods in Annex I of the CBAM regulation, due to a modification in the pattern of trade toward downstream products not covered by the current scope of CBAM and that contain a significant share of at least one of the basic CBAM goods. In addition, including downstream products that contain a significant share of at least one of the CBAM basic goods would also encourage non-EU manufacturers of these products to reduce their GHG emissions," the authority notes.

The Commission is seeking input particularly on the administrative burden and costs importers of downstream products may face in complying with CBAM if the scope were to be extended to downstream products.

It has opened a survey to all stakeholders for four weeks from 30 September to 25 October.