EU Commission wants to extend CBAM scope to downstream products and subsidise EU exporters with CBAM revenues

The Commission has proposed additional plans for its Carbon Border Adjustment Mechanism (CBAM):

i) using the CBAM revenues to compensate European exporters, and
ii) extending the scope of products covered by the CBAM to include downstream steel and aluminium goods.

To recap, introduced in 2021, CBAM is the EU’s carbon levy placed on certain imported goods such as steel, aluminium, fertilisers, and cement, with the aim of leveling the playing field between European producers subject to European Union (EU) environmental rules and external suppliers.

CBAM Moves into a New Phase Under the Clean Industrial Deal

In early July 2025, the European Commission updated its proposed plan to implement the Clean Industrial Deal, which included new steps for the implementation of the existing CBAM. The Commission has proposed that the CBAM be implemented alongside the phase-out of free allowances under the EU Emissions Trading System (ETS), scheduled between 2026 and 2034, by introducing a time-limited compensation scheme for European exporters in carbon-intensive sectors. Unlike earlier support based on free allowances, this measure would be funded directly from CBAM revenues. Which according to Carbon Market Watch, are projected at about €70 million in 2026, and €1.5 billion annually by 2028 depending on carbon prices and sectoral coverage [1].

The proposal has drawn mixed reactions. Supporters within Europe argue that it is necessary to safeguard industrial competitiveness while maintaining the credibility of the ETS. Critics, however, warn that linking CBAM revenues to export support risks breaching WTO subsidy rules. It is argued that the program could potentially give European producers a dual advantage, by shielding them from import competition through CBAM while at the same time subsidising their ability to compete in third-country markets. This combination is seen as particularly problematic for global trade, as it could disadvantage external producers and heighten the risk of reciprocal measures from trading partners.

More products to be covered by CBAM

In August 2025, the European Commission proposed further technical changes to CBAM through its Omnibus I legislative package. This update focused on implementation details, including consultations on extending CBAM to downstream steel and aluminium products and on measures to prevent circumvention.

The package also simplified the exemption rules. A new 50-tonne annual threshold per importer replaced the previous value-based approach, meaning EU importers bringing in less than 50 tonne of CBAM goods per year are exempt from reporting. This adjustment is expected to remove about 90 percent of importers from full reporting and payment obligations, while still capturing around 99 percent of embedded emissions.

Why ASEAN Should Pay Attention

CBAM has already started to impact ASEAN exporters, obligations to report are ongoing until the end of 2025, with certificate purchases beginning in 2026. While the 50-tonne de-minimis threshold may provide some relief for smaller exporters, the burden and resources required on third country exporters for facilitating the reporting and implementation of CBAM does not change.

It confirms what many third countries fear – that CBAM’s coverage is expected to continue to increase, and may soon cover sectors like petrochemicals, plastics and raw materials, which could significantly impact ASEAN’s key export sectors.

Vietnam is currently the most exposed ASEAN country to CBAM with the EU importing €2.24 billion of iron and steel from Vietnam in 2024, alongside another €324 million in aluminium and other non-ferrous metals, making it the single largest ASEAN exporter affected by CBAM. It is followed closely by Indonesia with its cement production. With global sales worth about US $375 million in 2024, it is one of the region’s largest cement and clinker exporters. While Indonesia’s cement shipments to the EU are modest compared with metals. Clinker in particular, is experiencing growing exports even as cement volumes contract. This carbon intensive product presents significant compliance costs and challenges even with limited export going into Europe.

The discussions to expand the scope of CBAM to downstream steel and aluminium items is expected to conclude by the end of 2025 [2], potentially pulling even more companies with production chains in Vietnam and Thailand into its crosshair. A silver lining to this comes from Brussels’s signaling of the potential recognition of third-country carbon pricing schemes. Offering a possible lifeline for ASEAN states with already implemented Carbon pricing or those who are pursuing their own ETS frameworks.

For ASEAN, the update highlights how Europe’s industrial and climate policies are moving into a more operational phase, and that exporters will need to pay attention as these measures begin to affect access to the EU market.

Call for evidence on calculation of emissions

On 28 August 2025, the Commission launched a call for evidence that aims to gather the opinions of all stakeholders on the rules on the methodology for calculating emissions embedded in CBAM goods, rules on the adjustment of CBAM certificates to reflect the EU ETS free allocation, and rules on the deduction of the carbon price paid in a third country.

Contributions can be inputted here, and ends on 25 September 2025.

ASEAN countries who have their own carbon taxation policies (Singapore, Thailand, Indonesia etc) should use this opportunity to provide their proposed methodologies for calculating exemptions.

How Should ASEAN Prepare and Respond

For ASEAN businesses, preparation will be critical. Immediate priorities will be on strengthening emissions monitoring and reporting systems, tracking which downstream products may be added to CBAM, and planning for certificate costs.

On a higher level, policymakers will need to intensify engagement with the EU on third-country carbon pricing and MRV standards recognition. This is crucial in providing compliance support for SMEs, and encouraging sustainable investments in reducing the carbon intensity of key exports

While CBAM remains an EU policy instrument, its practical effects will be felt along ASEAN supply chains. Early preparation and constructive engagement can limit frictions and help maintain predictable access to the EU market.

[1] Lidia Tamelini (2025). CBAM must not be used to export pollution, Carbon Market Watch.

[2] European Commission (2025). CBAM: Public consultation on the extension of CBAM to downstream products.