The European Commission has put forward a plan to extend the Carbon Border Adjustment Mechanism (CBAM) to downstream steel- and aluminium-intensive products. Under the proposal, companies exporting products to the EU could face direct CBAM obligations from 2028 if their product codes are included in the final legislation. This could apply even when those products are made using steel that is already covered by the mechanism.
The proposed extension is described as separate from existing CBAM obligations. The Commission’s proposal would cover 180 downstream products, while positions adopted by the Council of the EU and the European Parliament envisage broader coverage. The stated policy objective is to reduce the risk of production shifting from the EU to jurisdictions with lower carbon costs, particularly where basic metals remain subject to CBAM but downstream manufacturing does not.
The final product list and the calculation methodology are still under negotiation. Companies are therefore advised to distinguish between requirements for 2026 imports and potential obligations arising from a future downstream extension. The Commission proposal and the Council and Parliament positions can be used for scenario analysis, investment planning and contract drafting, but they are not treated as binding for current declarations before any amending legislation takes effect.
A preparation approach based on two scenarios is described as a way to avoid assuming that proposed changes have already become law. One scenario would reflect current CBAM requirements, while a second would estimate exposure under a potential reform. This structure is intended to support preparation of data systems and optional contractual provisions without basing present compliance positions on an unsettled legislative outcome.
Potential shift in compliance responsibilities for machinery exporters
For machinery plants, the data challenge differs from that faced by steel mills. A machinery manufacturer may buy dozens or hundreds of steel components from multiple suppliers, and embedded emissions in those materials could outweigh direct emissions at the manufacturing site. If downstream products are brought into CBAM, compliance would involve more than monitoring fuel use and emissions at the plant.
Companies would need reliable bills of materials, supplier information, emissions values and consistent allocation methods that link covered inputs to finished product families. Manufacturers should be able to identify quantities of covered steel used in each product family, the installations supplying those materials, and the relevant emissions data. Where one precursor supports multiple outputs, allocation would need to follow a consistent and auditable methodology.
Enterprise resource planning (ERP) systems and procurement master data are identified as key inputs for monitoring, reporting and verification (MRV), especially for high-volume standardised components. The reporting requirement would therefore depend on tracing covered inputs through purchasing records and production structures rather than relying solely on site-level emissions figures.
Product-level accounting for carbon cost calculations
Steel producers and downstream manufacturers are advised to assess carbon costs at the level of products and production processes rather than relying only on corporate-average targets. Under CBAM methodology, improvements within the regulated boundary may change calculated liability. Other decarbonisation measures may improve a product’s wider environmental performance without producing the same immediate effect on CBAM costs.
A documented link between an engineering measure and its potential certificate impact is described as a way for management to compare investments. Some measures may reduce current border-adjustment costs, while others may lower energy expenditure, improve broader product carbon footprints or reduce future transition risks. These benefits should be assessed separately to avoid double-counting the same emissions reduction.
The distinction is relevant when comparing production routes, suppliers and capital expenditure. A lower corporate emissions figure does not automatically translate into a corresponding reduction in CBAM liability for every product exported under the mechanism’s rules.
Supplier data requirements and implications for make-or-buy decisions
A downstream extension could affect manufacturing economics inside and outside the EU. European producers already facing carbon costs under the EU Emissions Trading System (EU ETS) may gain additional protection against imports of carbon-intensive components. Non-EU manufacturers using lower-emission steel and providing robust emissions evidence could remain competitive.
The role of default values may become more significant if applicable mark-ups increase from 2028. Suppliers with product-specific data and verifiable production records could be better positioned to demonstrate emissions performance to EU customers. This shift would influence how purchasing teams evaluate suppliers beyond finished-component pricing.
Supplier selection could increasingly depend on substantiating origin, quantity, production route and emissions of steel incorporated into a product. Carbon data quality could therefore become part of supplier qualification processes and commercial negotiations. The ability to provide traceable information would be expected to affect both procurement decisions and contract discussions.
Recordkeeping approach using industrial evidence
Companies are advised to rely on established industrial records wherever possible for CBAM controls. Examples include heat numbers, production orders, warehouse movements, fuel-meter readings and ERP material issues. A separate CBAM spreadsheet may be used for calculations, but it should not replace records that document how material quantities and emissions have been allocated.
The control system would need to connect reported figures with underlying commercial and production evidence. This is particularly important when manufacturers use actual emissions values for specific precursors because verifiers must trace claimed results through relevant records and calculation methodologies. The same information should support purchasing, production, customs, finance and compliance functions.
Maintaining disconnected datasets increases the risk that changes in supplier details, production routes, prices or regulatory treatment lead to inconsistent figures across business units. The approach described links MRV outputs to operational records so that assumptions remain traceable throughout internal reporting processes.
Western Balkans exporters: screening CN codes and preparing supplier evidence
Manufacturing across the Western Balkans is described as closely integrated with EU automotive, electrical equipment and machinery supply chains. Extending CBAM downstream could therefore affect a wider group of exporters beyond primary steel and aluminium producers. Exporters with high metal content, narrow margins and customers able to switch suppliers quickly may face heightened exposure.
The preparation process described begins with screening relevant CN codes, ranking products by EU sales volumes and metal intensity, then requesting CBAM-ready data from strategic steel suppliers. Investment in data architecture is also described as useful even if the final list of covered downstream products ends up narrower than initially proposed by the Commission.
The rationale given for continued investment is that EU customers increasingly seek comparable information through procurement requirements and product-carbon programmes. Strengthening material traceability is presented as relevant beyond any single regulatory change affecting which downstream products are covered by CBAM.
Addressing evidence gaps before reporting periods close
A practical test described for implementation readiness is whether a company can explain the same emissions result both to a verifier and to a commercial manager using the same underlying records. The minimum decision file should connect CN code details with precursor information, process boundary definitions, production records and verified emissions values while indicating who approves each assumption.
The decision file should also include a documented fallback where preferred accounting cannot be substantiated. Establishing this alternative in advance is described as reducing risk associated with discovering actual exposure only after challenges by a verifier, customs authority or an authorised CBAM declarant.
The financial implications are expected to develop through the decade as unresolved evidence gaps recur over time. Clear records combined with controlled assumptions are also described as supporting price adjustments, changes in verification requirements and management reporting when those elements become subject to review or negotiation.
The key planning question presented is whether exposure has been assessed before relevant transactions or reporting periods are finalised. Companies able to translate complex material bills into credible emissions evidence that can be traced through records are described as better positioned for supplier negotiations, compliance demonstrations and responses to changes in regulatory requirements.