Making CBAM effective against carbon leakage – a BusinessEurope position paper

Effective carbon leakage measures are crucial to level the playing field and support European industry in its decarbonisation efforts. On 1 January 2026, CBAM enters into its definitive phase. Importers of CBAM goods will then have a financial obligation to pay for the embedded emissions, with payments starting in 2027.

CBAM, as a first-of-its kind measure, is untested and still incomplete in its design. Its current configuration risks undermining European industrial competitiveness and fail to deliver effective carbon leakage protection. A substantial improvement of the mechanism is urgently required to achieve its objectives.

In this context, the Commission’s upcoming reviews scheduled for this year and early next year will be crucial. Given that the mechanism has not yet been tested in full, it is essential to follow a well-considered and properly sequenced approach. We urge the Commission to first strengthen the design of CBAM and address its current shortcomings. Thereafter, the impact of the measure
on carbon leakage and competitiveness should be thoroughly assessed. And finally, an extension of its scope to additional ETS sectors could be considered only if the mechanism is proven to be effective. However, if CBAM proves not to be effective, the phase-out of free ETS allowances shall be postponed, until other appropriate instruments are found that can reliably provide carbon leakage
protection assurance.