Carbon Border Adjustment Mechanism

The Carbon Border Adjustment Mechanism (CBAM), adopted in 2023, is a central element of the EU’s Fit for 55 package. Under CBAM, importers must purchase certificates reflecting the carbon emissions embedded in imported products. The certificate price mirrors the EU Emissions Trading System (EU ETS) carbon price faced by European producers.

CBAM aims to tackle climate change globally by addressing the risk of carbon leakage, discouraging businesses from transferring production to non-EU countries with less stringent climate rules.

The Regulation applies to goods produced in selected sectors considered at high risk of carbon leakage, including steel, cement, fertilisers and aluminium. It covers direct emissions and, for sectors not eligible for indirect cost compensation, indirect emissions.

Implementation and proposed changes

CBAM entered into force on 1 October 2023, with a transitional period until 31 December 2025. From 1 January 2026, importers are required to submit annual CBAM declarations and surrender CBAM certificates. Under the current framework, CBAM is being phased in gradually as free allocation under the EU ETS is phased out for CBAM-covered goods.

In 2025, the European Commission proposed extending CBAM to selected downstream products and creating a Temporary Decarbonisation Fund to address carbon leakage risks linked to exports. However, the Fund does not provide an effective solution to export-related carbon leakage. It is not export-specific, does not cover all affected products and remains subject to conditionality requirements.

In July 2026, the Commission proposed a further review of the ETS Directive for the post-2030 period, including a slower phase-out of free allocation for CBAM sectors. However, this does not represent a structural solution to export-related carbon leakage. By the end of 2027, the Commission is expected to propose extending CBAM to additional products.

FuelsEurope’s position and recommendations

FuelsEurope welcomes CBAM as an instrument to reduce the risk of carbon and investment leakage as the EU increases its climate ambition. However, significant shortcomings in its current design must be addressed before any extension to refinery products is considered.

With the phase-out of free allowances for CBAM-covered goods under the EU ETS, EU operators producing goods for export will be at a disadvantage in export markets. Concerns about the tightening EU ETS cap and declining free allocation must be addressed to restore industrial competitiveness and enable the large-scale investment required for the energy transition.

FuelsEurope calls for the following elements to be considered:

  • Align CBAM and EU ETS revisions. CBAM should be reviewed in parallel with the EU ETS, and any expansion of its scope should be carefully assessed for its impact on the refining sector.
  • Maintain existing carbon leakage protection. CBAM should coexist with current measures to mitigate carbon leakage risk. These measures should not be reduced below current levels until CBAM’s effectiveness for the refining sector has been demonstrated.
  • Address export-related carbon leakage. The carbon leakage framework must include an effective and adequate solution for exports.
  • Ensure a genuine level playing field between EU and non-EU suppliers for greenhouse gas emission costs.
  • Prevent circumvention and resource shuffling through robust safeguards.
  • Establish an EU-wide system for indirect cost compensation for all trade-exposed sectors, rather than including indirect costs in CBAM.
  • Develop a fair methodology for the refining sector.