Carbon Border Adjustment Mechanism progresses at Ecofin Council
The EU’s Economic and Financial Affairs Council (Ecofin Council) agreed its general approach on a proposal to strengthen the Carbon Border Adjustment Mechanism (CBAM) in Luxembourg on 12 June 2026. The proposal would extend the CBAM to downstream products and introduce new measures to prevent circumvention.
The CBAM currently only targets basic materials like iron, steel, aluminium, fertilisers, cement and electricity. In December, the Commission published a proposal to extend the mechanism to certain steel- and aluminium-intensive products, called downstream products. Product categories of this kind that Finland imports in significant quantities include motor vehicles for the transport of goods, medical equipment and a variety of machine and equipment parts.
The proposal would also strengthen anti-circumvention measures, extend the mechanism to scrap iron and aluminium and modify the methodology for calculating imported electricity.
Key issues in negotiations included the scope of the extension into downstream products and the limitation of the delegation of powers to the Commission in situations where the mechanism could be temporarily suspended.
Some Member States wanted to expand the scope significantly beyond the Commission’s proposal, while Finland underlined the importance of thorough impact assessments and the significance of objective, quantitative criteria based on the risk of carbon leakage. Compared to the Commission’s proposal, the Ecofin Council wants to double the scope of the downstream extension measured by the number of different goods. This would also increase the number of importers subject to the requirements of the mechanism.
“Finland considers the Carbon Border Adjustment Mechanism an important instrument for preventing carbon leakage and promoting carbon pricing internationally. We emphasise the need for predictability, a stable regulatory framework, thorough impact assessments and high-quality implementation. The Council’s general approach on extending the mechanism to downstream products is a compromise between the differing views of the Member States,” says Minister of Climate and the Environment Sari Multala.
Member States’ views are also divided on the proposed delegation of powers to the Commission to temporarily narrow the scope of the mechanism. Finland has stressed that a temporary exemption could undermine the predictability of the mechanism and investment certainty for clean transition projects. Finland takes a critical view of the proposed delegation of powers. However, the Council’s general approach includes appropriate safeguards limiting the use of a temporary exemption.
Discussions on the proposal will continue in negotiations between EU institutions and in the European Parliament led by the ENVI Committee. A part-session vote is preliminarily scheduled for September.
The CBAM is an EU climate policy instrument to ensure that the prices of products imported from outside the EU better reflect their emissions content. Since the start of 2026, the mechanism has imposed a cost on certain products from outside the EU equivalent to that imposed by the EU emissions trading scheme on similar products manufactured in the EU. The mechanism encourages non-EU manufacturers and importers to reduce emissions. It's primary objective is to prevent carbon leakage, i.e. the relocation of production to non-EU countries where production costs are lower due to looser climate regulation.
ETLA Economic Research report on the possible extension of the CBAM to indirect emissions
The Commission is currently looking into extending the CBAM from direct emissions from the manufacture of goods to indirect emissions, such as emissions from the production of electricity consumed in manufacturing. The Commission intends to publish a proposal on whether or not to extend the scope to indirect emissions in 2027.
The Ministry of Economic Affairs and Employment funded a study by ETLA Economic Research of the effects that this possible extension would have. The report was published on 10 June 2026 (ETLA report 178, Extending the Carbon Border Adjustment Mechanism to Indirect Emissions: Implications for Finland). The report simulates different scenarios of the effects of the extension combined with changes to indirect cost compensation. The report concludes that the extension would reduce the risk of carbon leakage and imports, although it would also increase the cost of imports in Finland.
Inquiries:
Katja Tuokko, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 295 047 660
Juuso Kilpinen, Special Adviser to the Minister of Climate and the Environment, tel. +358 295 250 128