The European Union (EU) has announced plans to expand its Carbon Border Adjustment Mechanism (CBAM) to include downstream products such as car parts and washing machines. This policy is designed to shield European industries from cheaper imports originating in countries with weaker climate regulations. While the levy is currently in a pilot phase, it will begin imposing actual costs on high-emission goods from January 2026.
Trading partners including India, China, and South Africa have criticized the levy, arguing that it unfairly penalizes their economies. In response to these objections, the EU is doubling down by tightening loopholes that foreign firms might use to under-report emissions or dodge fees. If under-reporting is detected, the EU may impose “default emissions values,” resulting in a significantly higher tax bill for the importing country.
The EU intends to use 25% of the revenue generated by the scheme to compensate European manufacturers for their higher climate-compliance costs. Despite the international pushback, some observers note that the policy is successfully changing behavior, as nations like India and Brazil have begun developing their own carbon pricing systems. Negotiations between EU countries and the European Parliament will continue before these new proposals are finalized into law.