Changes to EU carbon tax on imports

As part of European Union (EU) policies to ensure a genuine transition to net zero, the Carbon Border Adjustment Mechanism (CBAM) aims to ensure importers in the EU are not contributing to what the legislation calls “carbon leakage”.

This is when a product is manufactured in a high-emissions manner, or uses inputs with high emissions, but may be able to position itself as low carbon or net zero thanks to offsets or other forms of circumvention.

CBAMs are essentially levies or fees applied to imported goods to ensure their prices accurately reflect the carbon emitted during production. They also encourage cleaner industrial production in countries where the goods are produced.

The proposed changes to the CBAM target product categories that involve emissions-intensive material inputs such as steel, aluminium or classes of chemicals. Under the revised rules, additional scrutiny is proposed for HVAC&R equipment including heat pumps, air conditioning units, refrigeration equipment, freezers, cooling tower equipment and boilers (gas and electric).

The European Parliament’s Committee on Industry, Research and Energy has published its advice here.

The advisory also considered emerging risks associated with current world events.

“Considering growing geopolitical uncertainty, the extension of the downstream scope should be guided by the overarching political priority of reversing the deindustrialisation trend and strengthening ‘Made in the EU’ value chains,” the advisory states.

“Without embedding this political and economic vision in the design of the CBAM, the erosion of the EU’s industrial base by actors with interests outside the EU will continue to accelerate.”

Last year, the Commonwealth Department of Climate Change, Energy, the Environment and Water (DCCEEW) released its report of Australia’s Carbon Leakage Review undertaken between July 2023 and March 2025.

The review recommended that a border carbon adjustment be introduced for a select group of commodities that are at particular risk of carbon leakage from imports – initially cement and clinker. Other commodities would be subject to further assessment.

The review’s recommendations will be considered in the 2026-27 review of the Safeguard Mechanism.

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