Including products further down the value chain in the EU CBAM

Author(s): Andrei Marcu, Aaron Cosbey, Michael Mehling, Sara Svensson

Currently, CBAM covers key primary goods like iron and steel, fertilizers, cement, aluminum, electricity, and hydrogen. However, limiting the scope to primary goods leaves room for circumvention. For example, non-EU producers exporting aluminium might instead manufacture semi-finished or finished products, like window frames, to avoid paying the CBAM, while EU manufacturers of those same products face higher input costs due to the ETS and CBAM.

The European Commission is required to review the potential expansion of CBAM to include downstream sectors by the end of 2024. This ERCST report explores which factors should guide the inclusion of downstream goods in CBAM and which types of products should be considered for the CBAM’s expansion, which is critical to solving the circumvention issue.

The report highlights that expanding the CBAM to vulnerable downstream sectors, is crucial to prevent carbon leakage, but this must be done with precision to avoid unnecessary administrative burdens.