EU CBAM Consultation – Targeted CBAM Expansion And Changing Rules For Electricity

On 1 July 2025, the European Commission (the "Commission") launched a public consultation (the "Consultation") in relation to the EU Carbon Border Adjustment Mechanism (the "EU CBAM") (see our previous blog post on the EU CBAM here) to seek feedback on:

• the possible extension of the EU CBAM's scope to include certain downstream products;
• anti-circumvention measures; and
• changing certain rules for the electricity sector.

The need for expansion to downstream products and the risk of circumvention were highlighted in the European Steel and Metals Action Plan, and the Commission committed to present a legislative proposal by the end of 2025. The decision to seek feedback on the rules for electricity was driven by the insights obtained in the transitional phase of EU CBAM.

Downstream extension

The Consultation questions seek answers from stakeholders on the carbon leakage risk in downstream sectors and the likely impact and cost of including downstream products into the scope of EU CBAM. EU CBAM currently covers certain goods in the cement, iron and steel, aluminium, fertilisers, electricity and hydrogen sectors ("CBAM Goods"). The Consultation proposes to extend the scope to downstream products to include goods that are manufactured from CBAM Goods. The selection of downstream products would be based on analogous criteria to those used to determine the initial scope of EU CBAM. Thus, the carbon leakage risk of downstream products (which according to the Consultation depends on their tradability and carbon cost), relevance of embedded emissions and technical feasibility would be considered. The Consultation does not offer any further detail on these criteria, but the Consultation questions indicate that some of the technical feasibility concerns include the cost of determining the content of CBAM Goods in the downstream good, determining the embedded emissions covered per tonne of CBAM Good input and determining the carbon price already paid outside the EU for the CBAM Goods. Certain steel and aluminium-intensive products are likely to be included in the scope, as the European Steel and Metals Action Plan identified such products as having a particularly high risk of carbon leakage and stressed the need for their inclusion. The European Steel and Metals Action Plan argues that their inclusion is necessary to ensure the integrity of the CBAM framework and ensure that it applies effectively to the relevant in-scope sectors.

Anti-circumvention measures

The Consultation is also asking stakeholders to assess the risk of circumvention and the Commissions' proposed measures to address it. Circumvention in this context means any practice for which there is insufficient due cause or economic justification, other than to effectively avoid, wholly or partially, the financial liabilities arising from EU CBAM. The Commission is considering several anti-circumvention measures, including additional reporting requirement on the production technology and composition of the goods as it recognises that embedded emissions can vary widely within the same CN code based on these factors. However, no further detail has been provided by the Commission at this point in time.

Rules for electricity

The Consultation questions ask stakeholders to comment on the adequacy of the current way of determining default values for electricity and on the conditions for using actual emission values. Currently, default emissions values are generally used for the calculation of emissions for the electricity sector. The default values are based on the CO2 emission factor (the weighted average of the CO2 intensity of electricity produced from fossil fuels), but the Commission recognised that this methodology limits the recognition of the decarbonisation efforts of non-EU countries. The current EU CBAM regulation does allow the use of actual emissions values rather than default values, but importers have complained about the conditions they are required to meet to use actual emissions values. In particular, they pointed to the definition of power purchase agreements (PPAs), network congestion and capacity nomination as being difficult or even impossible to meet. According to Eurelectric, some of the specific complaints from stakeholders regarding PPAs include that:

• the definition of PPAs under the EU CBAM, which is "a contract under which a person agrees to purchase electricity directly from an electricity producer", is not consistent with the Electricity Market Design definition of PPAs;
• by requiring a direct contract with electricity producers, the current definition excludes situations where other market actors play an intermediary role in the sale and purchase of electricity;
• the obligation to be part of a PPAs excludes other long-term contracting instruments (such as Contracts for Difference); and
• as of March 2025, there were no PPAs concluded between non-EU and EU parties.

Importers have also argued that the current approach with the existing hurdles to using actual emissions values risks impeding the incentive for decarbonisation in non-EU countries.

The options being considered to address these challenges regarding the rules for electricity include:

• changing the default values from being based on the CO2 emission factor derived from fossil fuels to another factor (which the stakeholders can suggest in the answer to the Consultation questions);
• clarifying the applicability of different types of PPAs;
• simplifying the requirements for physical network congestion; and
• clarifying the application of the criterion of capacity nomination for the use of actual values.

Nextsteps

The Consultation closed on 26 August 2025. A factual summary report of the responses will be published eight weeks thereafter. Then, an additional synopsis report, which will summarise all Consultation responses and highlight key themes and areas for concern, will be published in due course and the Commission will present a legislative proposal by Q4 2025.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.