To reduce the administrative burden from its Green Deal laws, the European Commission (EC) introduced its first Omnibus Simplification Package on February 26, 2025. A key part of this package is a plan to simplify the Carbon Border Adjustment Mechanism (CBAM). The effectiveness of these changes in simplifying CBAM and reducing compliance burdens, while maintaining European Union (EU) competitiveness and economic health, remains to be determined.
CBAM regulations currently require imports of regulated products valued over €150 to be declared. Under the proposed draft, the number of affected companies will decrease significantly from the originally estimated 200,000 to approximately 20,000. According to EU statistics, 97% of carbon emissions covered by the carbon tariff originate from less than 20% of companies. Therefore, the EC intends to relax some CBAM rules and focus tariff pressure on the largest carbon emitters.
The EU will also impose stricter penalties for noncompliance, with fines ranging up to five times the original amount for splitting imports to avoid the carbon tariff. The full implementation of CBAM may be postponed to 2027, providing an opportunity for small and medium-sized importers to qualify for exemptions. Once fully implemented, companies will be required to purchase CBAM certificates to cover their products’ carbon emissions. For importers who have already paid carbon fees in their country of origin, the EU will issue a unified method for calculating the average carbon price across different regions, simplifying company calculations.
Other Key Changes:
- “De minimis” threshold: This exempts small importers from full CBAM obligations excluding importers of certain products (iron and steel, aluminum, fertilizers, and cement), provided that the quantity of imports is below 50 tonnes of net mass per year. The exemption does not apply to imports of electricity or hydrogen.
- Simplifying compliance procedures for remaining importers.
- Strengthening anti-abuse measures.
What Is the Carbon Border Adjustment Mechanism?
CBAM is an EU regulation aimed at preventing “carbon leakage,” where companies shift production to regions with less stringent environmental standards, thereby undermining the EU’s climate goals. It seeks to level the playing field and encourage global decarbonization by imposing a carbon price on imported goods, thus incentivizing non-EU producers to adopt cleaner production methods. For US exporters, this policy has significant implications. Companies exporting goods such as steel, aluminum, cement, fertilizers, electricity, and hydrogen to the EU face potential increased costs tied to the carbon emissions embedded in their products. This could lead to a competitive disadvantage if US companies fail to reduce their carbon footprint compared to producers with lower emissions.
CBAM also necessitates heightened supply chain transparency, demanding detailed and verifiable information about the carbon content of products. Furthermore, the policy introduces the potential for increased trade tensions between the EU and the US, and sets a precedent that could prompt other nations to implement similar regulations, requiring US companies to prepare for increased global carbon regulation.
Next Steps for CBAM Proposed Amendments
The proposed amendments to CBAM have entered the review phase, which involves two EU co-legislators preparing to examine the Commission’s proposals. The Commission is advocating for a fast-track procedure. This is subject to the co-legislators’ review and, ultimately, negotiations should any changes or further amendments be introduced. The final decision could range from additional revisions to the proposals’ outright approval.
The uncertainty surrounding the timing and review process may delay the release of pending implementing and delegated acts related to CBAM, which are currently anticipated in 2025. Furthermore, the goal of enhancing European competitiveness while upholding environmental commitments remains vulnerable to geopolitical influences. Other jurisdictions are also exploring their own carbon border adjustment mechanisms, indicating that establishing a level playing field will likely be a lengthy and iterative process.
For companies operating within the EU market, it is essential to continue monitoring and engaging with the evolving landscape of the EU’s Competitiveness Compass. This will enable them to effectively align their financial and operational priorities in the coming months and potentially years. As Commission President Ursula von der Leyen stated, “More simplification is on the way.”
Implications for US Companies
The EU’s CBAM presents significant implications for US companies that export certain goods to the EU. It is important to note that the burden of providing CBAM-compliant documentation extends to US companies even if they are indirect suppliers. Failure to comply with CBAM reporting requirements can result in significant financial penalties and reputational damage. While CBAM is in its transitional phase focusing on reporting emissions, this period is a critical time for companies to prepare for the full implementation of CBAM, which will involve financial obligations.
It is important for companies to understand which products are currently covered by CBAM, and to be aware that the scope of covered products may expand in the future. These include cement, iron and steel, aluminum, fertilizers, hydrogen, and electricity.
Proactive measures to ensure CBAM compliance include:
- Data collection and reporting: Companies need to accurately measure and report on the embedded carbon emissions of their products, which will require robust data collection systems. In addition, they should establish processes for gathering emissions data from their supply chains.
- Supply chain visibility: Companies should gain comprehensive visibility into their supply chains to understand the carbon footprint of their products. It is important to engage with suppliers to ensure they can provide accurate emissions data.
- Compliance monitoring: It is critical that companies stay updated on the latest CBAM regulations and guidelines. They must monitor EU policy changes and adapt their compliance strategies accordingly.
- Technology solutions: Companies will need to invest in technology solutions that enable them to track, analyze, and report emissions data and streamline the CBAM compliance processes.
- Contractual considerations: It will be important to review and update contracts with EU importers to address CBAM requirements. This will help clarify responsibilities for providing emissions data and handling potential carbon costs.
- Pre-verification: Companies should consider pre-verification of carbon emissions data, which can help to mitigate the risk of negative verification outcomes during the full implementation period.
- Strategic planning: It is important for companies to integrate CBAM compliance into their overall business strategy. This provides an opportunity to explore opportunities to reduce their carbon footprint and enhance sustainability.
- Monitor updates: Companies need to closely monitor updates from EU regulatory bodies, which includes engaging with industry associations and experts.
If your company is considering how best to adapt to and comply with CBAM-related customer requirements, please contact Canopy Edge for an initial consultation to discuss the most effective strategies and best practices.
