The minute
- The European Parliament voted 464 to 50 to adopt its negotiating position on proposed changes to CBAM, the EU’s carbon tax on imported goods.
- Parliament’s position would expand the product list by over 450 items, well beyond the European Commission’s original proposal of 180 steel and aluminum-intensive downstream products.
- MEPs also adopted a position on the temporary decarbonisation fund (TDF), broadening its coverage to include fertilizer producers and accelerating the timeline to run from 2027 to 2029 instead of 2028.
Why it matters: CBAM entered into force at the beginning of 2026, but it originally targeted only basic materials such as aluminum, cement, electricity, and steel. The Parliament’s move to include downstream products (machinery, vehicle components, domestic appliances, construction equipment, solar panels, heat pumps) signals that the carbon border tax is evolving from a narrow tool into a broad trade instrument. For non-EU exporters, the compliance surface just grew dramatically. The negotiation with the EU Council, which adopted its own position in June, will determine the final scope, but both institutions agree on expansion beyond the Commission’s initial proposal.
What this means for exporters outside the EU
Until now, a company exporting raw steel to Europe needed to account for embedded carbon and purchase CBAM certificates to cover the difference between its domestic carbon price (or lack thereof) and the EU Emissions Trading System price. With the expansion to downstream products, companies that buy that steel and turn it into machinery, vehicle parts, or appliances will also face CBAM obligations when selling into the EU. This creates a cascading compliance requirement along supply chains. Exporters in countries without a domestic carbon pricing mechanism comparable to the ETS face the highest certificate costs, because there is no local carbon price to deduct.
The anti-circumvention measures add another layer. Parliament wants to lower the “slightly modified” threshold, the margin by which a product can be altered to escape CBAM classification. In practice, this targets schemes where exporters reclassify goods through minor modifications. At the same time, lawmakers included a safeguard so that modifications driven by normal business decisions are not penalized. The balance between these two goals will be tested during implementation and likely challenged in trade disputes.
The Brazilian angle: concrete exposure and missing infrastructure
Brazil is a significant exporter of steel, aluminum, and fertilizers to the European market. The expansion of CBAM to downstream products means that Brazilian manufacturers of steel-intensive goods, not just primary steel producers, now face potential carbon costs when selling to Europe. For the fertilizer sector specifically, the Parliament’s decision to include urea, ammonium nitrate, and ammonium sulphate in the TDF eligibility list (which supports EU producers) suggests that European policymakers view fertilizer imports as a competitive concern, a signal Brazilian exporters of these products should monitor closely.
Brazil does not have a cap-and-trade emissions trading system equivalent to the EU ETS. The country’s regulated carbon market, established by Law 15.042 signed in December 2024, mandates creation of a Brazilian Emissions Trading System (SBCE), but implementing regulations are still being developed. Until that system is operational and generates a verifiable carbon price, Brazilian exporters cannot deduct a domestic carbon cost from their CBAM certificate obligations. This puts them at a disadvantage compared to exporters from countries that already operate carbon pricing mechanisms. The absence of a functioning domestic carbon price effectively means Brazilian companies would pay the full ETS-equivalent cost on covered exports to the EU.
What remains undecided
Parliament’s vote is a negotiating position, not final legislation. The next step is trilogue negotiations between Parliament and the EU Council, with the Commission acting as mediator. Several open questions will shape the final outcome. First, the exact product list: Parliament wants over 450 additions while the Commission proposed 180, and the Council has its own expanded list. The final number will emerge from negotiation. Second, the anti-circumvention thresholds: how narrowly “slightly modified” is defined will determine how enforceable the rules are in practice. Third, the TDF timeline and scope: Parliament wants 2027 to 2029, the Commission proposed starting in 2028, and the breadth of eligible sectors remains in play.
The replacement of the price-shock removal mechanism with a revenue-redirection tool is another point to watch. Under the Commission’s original proposal, goods could be temporarily removed from CBAM scope during price shocks. Parliament’s alternative would keep the goods covered but redirect CBAM revenues to affected sectors. This changes the incentive structure significantly, maintaining the carbon price signal while providing financial relief.
For countries and companies planning compliance strategies, the timeline of trilogue negotiations and the content of the final compromise text are the critical variables. Until that text is agreed, the exact scope of obligations remains uncertain, but the direction is clear: CBAM is expanding, and the enforcement net is tightening.
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