EU Faces Deep Rift Over Carbon Border Tax Revisions

As the European Union’s landmark Carbon Border Adjustment Mechanism (CBAM) moves closer to implementation next year, divisions are emerging across Europe’s industrial and political landscape. The European Commission plans to unveil a major review of the policy later this year, with significant implications for industry and trade.

Originally designed to protect European manufacturers from being undercut by imports from regions with weaker climate regulations, CBAM imposes a levy on the carbon emissions embedded in imported goods. It mirrors the EU’s domestic Emissions Trading System (ETS), under which companies currently pay around €80 per tonne of carbon dioxide emitted. Free allowances that have shielded heavy industry from some of these costs are due to be phased out from 2027, making CBAM a critical tool for maintaining fair competition while encouraging global decarbonisation.

However, major industrial players including BASF, Ineos, TotalEnergies, Siemens and fertiliser producer SKW Piesteritz are urging European leaders to reconsider the timing and design of the scheme. In recent letters to German Chancellor Friedrich Merz and French President Emmanuel Macron, executives warned that the current framework could threaten the economic viability of Europe’s energy-intensive sectors. They expressed concern that the additional costs associated with compliance could undermine the EU’s transition to cleaner production and erode competitiveness.

Despite this domestic opposition, CBAM is already influencing climate policy beyond Europe. Countries such as Brazil, Türkiye and Japan have introduced or strengthened carbon-pricing schemes this year in part to avoid penalties on exports to the EU. The EU’s climate commissioner, Wopke Hoekstra, has cited this as evidence of CBAM’s global impact, remarking that “the best CBAM is one that doesn’t make any money” meaning that other nations would have adopted similar decarbonisation measures.

A particularly contentious issue in the forthcoming review is whether CBAM should be extended to finished goods, such as vehicles and household appliances made from materials already covered by the levy. Critics warn that such an expansion could create a bureaucratic burden, especially for products with complex international supply chains. Industry groups argue that the current design risks damaging competitiveness and stifling investment in innovation, while supporters of the policy including the Business for CBAM coalition maintain that weakening or delaying the scheme would undermine the EU’s credibility and penalise firms that have already invested in low-carbon technologies.

EU officials have emphasised that the purpose of the review is not to rewrite the system but to make it more effective and practical ahead of full enforcement. As Hoekstra has noted, the Commission would “rather be street-smart, change it, make it workable, and move on.”

In the months ahead, Brussels faces the difficult task of reconciling climate ambition with industrial reality, while the rest of the world watches to see whether Europe can successfully implement one of its most ambitious climate trade policies to date.

Source: Financial Times

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