CBAM implementation package published and proposals for future expansion

On 17 December 2025, the European Commission published a long-awaited suite of implementing legislation and guidance for its Carbon Border Adjustment Mechanism (which we recently covered in our previous LawNow (from 1 December 2025). This development comes less than 2 weeks before CBAM’s definitive phase commences on 1 January 2026. Alongside the new legislation, the Commission also published a report on the CBAM transitional phase, a wide-reaching proposal to significantly expand the scope of CBAM to include further downstream goods from 2028, and solutions to close enforcement loopholes.

The publication of the implementation package will give businesses much-needed clarity on how the new carbon tax will be imposed - although this leaves little time to make changes in advance of the start of the measure’s definitive phase, on 1 January 2026.

New secondary legislation for CBAM

A series of implementing acts providing details on CBAM operations were published:

• Calculation methodology - adjusts the method for calculating embedded emissions following the transitional period in alignment with the EU Emission Trading Scheme (“ETS”). Where third country producers do not follow these rules, importers of in-scope goods will be required to use default values.
• Free allocation adjustment - sets out methodology for calculating adjusting number of CBAM certificates to be surrendered as ETS free allowances are progressively phased out between 2026 and 2034. 
• Customs communication - details rules on data elements to be shared, timing, frequency and methods of communicating with customs authorities, as well as procedures for doing so, taking into account EU data protection principles, with provisions for review by 2027.
• Default values - establishes rules on calculation of default values (including phased-in mark-ups) with revision planned by December 2027 at the latest.  Lower mark-ups will be applied to the fertilisers sector. No mark-ups will be applied to imported electricity and precursors.
• CBAM certificate prices - rules specifying how CBAM certificates will be priced following beginning of sales on 1 February 2027, based on weekly averages of ETS allowances.
• Verification principles - where emissions have been based on actual values for embedded emissions in imported goods. The act aims to ensure robust verification processes while minimising administrative burden (e.g. by requiring physical site visits of good-producing installations only in the first year of verification, with virtual site visits permitted in later years.)
• Declarant authorisation - the implementing act incorporates procedures simplified as part of the Omnibus package, making consultation with other competent authorities prior to granting and revoking CBAM declarant status optional, and allowing importers who have applied for declarant status to import goods whilst their applications are pending (until 31 March 2026).
• CBAM registry - the implementing act sets out rules for the definitive CBAM registry, facilitating information exchange between authorised declarants, those with access rights, customs authorities, competent authorities, verifiers, and the Commission.

A further delegated act was also published on accreditation and verification, setting out detailed rules for verifier accreditation and oversight, as well as mutual recognition of accreditation bodies.

All implementing legislation described above takes effect 1 January 2026, at the commencement of the definitive period.

CBAM legislative proposals

Proposals were also published of regulations for:

• Scope expansion (from 2028) - the Commission published a draft regulation which would extend CBAM to steel and aluminium-intensive downstream products. The proposal covers 180 additional product categories including car parts, domestic appliances (e.g. refrigerators, washing machines), construction products, power transformers, cables, farming machinery and a wide range of industrial equipment. Goods containing steel or aluminium as functional components (not just those made entirely of these metals) will also be in scope, such as fasteners, fittings, furniture components, and electrical cables. The expansion is expected to bring an additional 7,500 importers into compliance scope.
• Establishing a Temporary Decarbonisation Fund (“TDF”) - valued at up to €630 million and proposed to operate from 2028-2029, the TDF would allocate 25% of revenues generated from CBAM to partially reimburse the cost of purchasing ETS allowances. This would apply at the same time as free allowances are phased out from 2026, and therefore provides temporary support to sectors at high risk of carbon leakage following CBAM implementation. Eligible sectors include fertilisers, aluminium, and iron and steel producers

The draft scope expansion regulation also contains measures designed to prevent abusive practices and emissions misdeclaration (including pre-aluminium and steel scrap as a CBAM precursor) . It also sets out streamlining embedded emissions calculation methodology for electricity imports by basing default values on average emission intensity of all electricity sources in the exporting country, including renewables and low-carbon generation, rather than only on fossil fuel generation.

These will be subject to the EU inter-institutional dialogue prior to finalisation and so therefore they are expected to undergo detailed review and amendment by the European Parliament and Council in the coming year.

CBAM Review Report and insights

• International reactions - despite international partners expressing concern that the mechanism is protectionist, the EU’s report on CBAM published alongside the implementation package indicates that it considers the impact on least developed, developing and neighbouring countries is “relatively minor”. The FAQs also addresses whether CBAM is compliant with WTO rules, confirming that imported products will not be treated less favourably than EU products.
• Exemptions for trading partners - the EU has announced that no exemptions will be granted, including for the UK, or for Ukraine, despite the current war with Russia. Only countries with EU-linked carbon markets will be exempt (e.g. Switzerland). Northern Ireland, however, will be default be exempted from EU CBAM as no alternative has been agreed in time for the definitive phase taking effect.
• Future updates - the report indicates proposals for further downstream product expansion are under consideration, potentially including chemicals and downstream emissions

Conclusion

The publication of the extensive CBAM implementation package provides businesses with critical details on the mechanism’s operation just ahead of its definitive phase. However, the short timeframe before the 1 January 2026 start date presents a challenge for compliance – businesses trading in-scope goods must rapidly digest the new rules. Looking ahead, the proposed expansion to further downstream products from 2028 and potential further inclusions signal the EU’s long-term commitment to its CBAM policy.

Affected companies should act quickly to assess supply chain exposure and establish robust compliance processes as the CBAM regulatory landscape evolves.

For further information, please contact the authors or your usual CMS contacts. Our CBAM team will provide further analysis of these developments in more detail in future Law-Now articles in the New Year, and other CBAM-related developments in 2026.